The Expat’s Guide to a Spanish Retirement

For so many British nationals who have spent most of their time living in the rain-soaked country, Spain is the ideal destination for retirement. The country is already home to over 100,000 British pensioners. This number is steadily increasing even though Brexit has complicated the process and made it more expensive.

Fortunately, with the right help, it is still possible to make the move and do it in a tax efficient manner.

Financial requirements

Firstly, expatriates are required to have either an income or savings of at least £23,258 for every year they reside in Spain. (This does not include the £5,704 that is required for every additional family member.) Those who make the move must be able to prove that they can meet this requirement. Therefore, careful planning is imperative, as you will need to account for the number of years you plan on living abroad. Currently, the state pension per year is worth £9,350, so pensioners will need to have resources to pull from for the remaining sum.

Thus, if a couple each around the age of 65 were to receive the full state pension, then £335,000 would be needed between them to sustain themselves until they reach 90 years old.

As of now, British nationals relocating to the EU after Brexit will continue to receive their British state pension. This will increase each year, maintaining the current rate which is paid in the UK.

Visas

Making the decision to move is the first step. The next step is figuring out the legal requirements for this kind of move.

Firstly, because pensioners are classified as being economically inactive, they must follow a certain set of rules that those who are of the working age do not.

The way you immigrate to Spain will depend on your circumstances. Since Brexit, stricter rules have been put in place. Now, expats may go one of two routes. They may either obtain a non-lucrative visa or a Spanish Golden Visa.

The non-lucrative visa is valid for three years. After the first year, it will need to be renewed to continue for the next two years. To qualify for this visa, financial resources need to be proven to pass the income requirements. For a couple, the visa is estimated to cost £3,500. This includes a fee for the application itself and for medical and criminal checks, document translations, etc.  

The other more costly option is the Golden Visa. The Golden Visa is available for many EU countries, and it provides expats with more flexible rights in Europe. In exchange for these rights, applicants are required to contribute to the economy in a significant way by either investing in property or the economy. These applications cost around €5,000-€6,000.

Taxes

Of course, relocating to Spain requires more than a visa. Understanding Spain’s tax rules is essential to avoid hefty bills. While the UK may have investment opportunities that are tax efficient, they will not be treated in the same way abroad. Dividends, capital gains, and interest on such investments may be taxable in Spain. Whatever income is drawn from a pension pot is taxable by the jurisdiction where the individual lives (UK government employee pensions excluded).

What is important to keep in mind is that there is no longer a 25% tax-free pension cash rule. Now, the 25% is taxable in Spain because all pension funds are taxable there. Because of this fact, some may opt for receiving the untaxed cash before officially relocating. 

Additionally, those who have already moved to Spain may face more charges if they plan to sell their UK home. The rules in the UK are different to those in Spain, and the sale may become a tax liability. This is similar for those who leave the UK before selling their business. The profit from the business sale may still be taxable in Spain. Therefore, some find it more beneficial to sell the home and business before moving instead of afterward, as the latter does not always allow individuals to evade the UK’s capital tax gains.

Spain is one of the European countries that has some taxes the UK does not. For example, it has both an exit tax and a wealth tax. These taxes require expatriates to complete additional tax returns. Failure to properly declare large overseas assets may lead to a penalty. These taxes also vary amongst the different regions in Spain. One region may provide relief on certain taxes like inheritance and wealth, while others may charge 34% for death duties.

Buying property

When it comes to purchasing property in Spain, many are pleased to find out that the cost for the national average square meter is much less than that of the UK’s. These prices certainly attract property investors, but taxes should still be considered. Because of VAT, fees, taxes, and stamp duty costs account for around 11% of the purchase price. This number does not include the fees for conveyancing.

Insurance

Finally, it is necessary for Britons to prove that they will not be a financial burden to Spain and its economy. Therefore, British expatriates must have a private healthcare policy. This insurance plan must cover at least €30,000 for the entire period of the individual’s residence permit.

Seek advice

Upon retirement, hopping on the first plane out may be desirable. After all, an enjoyable retirement is well-deserved after a life of hard work. However, planning for this takes an immense amount of time and research. Speaking with a qualified financial advisor can be the difference between you being charged unexpected tax bills and saving costs on the move.

If you would like to speak with one of our advisors about your options, contact us today.