Are you planning to move to Mallorca, or have you recently arrived? What a good choice. It is a fantastic island, with beautiful scenery, great sailing, diving, food and drink and warm welcoming local people. Spain can also offer advantages from a financial point of view.
Here is a general overview of the key financial considerations for UK nationals of relocating to Spain and more particularly Mallorca. It is also useful for those already living here.
1. Tax residency and obligations
You need to establish what makes you resident in Spain for tax purposes. It is not just a matter of day counting. If you meet the residency criteria, then you are liable for Spanish tax on your worldwide income, gains and wealth, and subject to the Spanish succession tax rules.
UK nationals also need to understand the UK tax residence rules to make sure you do not inadvertently find you are resident in the UK for tax purposes – it is easier than you may think.
2. Your home
Your home is likely to be among your most important assets. If you own property in the UK and/or in Spain, which do you sell, when and why? What is the best plan to limit or avoid UK or Spanish capital gains tax? Appropriate, timely advice, will avoid common pitfalls. These are issues to look at seriously, as you can preserve your wealth by careful planning or allow it to be reduced significantly by tax.
3. Notifying the tax authorities
If you have not yet left the UK, advise HM Revenue & Customs of your departure date on Form P85 (available from local tax offices or www.hmrc.gov.uk).
You then need to make yourself known to the Spanish tax authorities and submit income tax returns each year.
4. Structuring your assets to minimise tax
Spanish taxpayers have had a particularly high tax burden over recent years, though they are now improving a little. The top income tax rate is between 44% and 48%, depending on where in Spain you live – in Islas Baleares it is 44% for 2015.
With specialist advice you can structure savings and investments to be tax efficient in Spain. This is even more important with having to report overseas assets on Modelo 720.
Do not presume that what was tax efficient in the UK is tax efficient in Spain. You will probably need to vary existing arrangements with those designed for Spanish residents.
5. Bank accounts
If you retain any UK bank accounts, the bank interest will be taxable as a Spanish resident. To receive UK bank interest gross you can usually submit Form R105 to your UK bank.
Many British expatriates keep their savings and investments in Sterling. This puts income at the mercy of exchange rate fluctuations. A sensible rule of thumb is to match your assets to your liabilities, so if your long-term spending will be in Euros you should consider holding an appropriate amount of your assets in Euros to reduce currency risk.
If you may return to the UK in the future, it is often wise to have diversification in your assets, including currencies.
There are usually ways to improve your private pension arrangements to make them work better for you when living here. It is vital that you receive specialist advice before you take any pension decisions. There are various options for your UK pension funds, and each has different implications for your long-term income and the tax payable.
8. Inflation and your long-term security
Inflation will reduce the spending power of your savings over your retirement years. It is essential that you take action now to protect your wealth in real terms, so that you can enjoy the standard of living you are used to throughout retirement.
Your investment strategy should be specifically designed around your circumstances and objectives. Your circumstances drastically change with retirement and a move to a new country, so your strategy needs to be professionally reviewed to establish how it should be adjusted to suit your new life and goals, and ensure it is suitable for you.
10. Estate planning
It is important to review your estate planning when you move to a new country. Your estate planning arrangements need to take both Spanish and UK succession law and tax into account. Ensuring that assets pass to the right beneficiaries at the right time, with the minimum of administration and taxation, can be a complicated process, especially for those with assets in different countries. It is important to undertake a succession planning health check, with help of a specialist wealth manager.
Taking advice from a professional tax planning and wealth management specialist is invaluable. It is the only way you can be sure that you have not overlooked anything, and that you have established what all your options are and how suitable they are for you.
Blevins Franks has decades of experience advising British expatriates on their wealth management, and in-depth knowledge of Spanish taxation. We specialise in reducing tax on invested capital, pensions, wealth and inheritance, and have saved our clients a substantial amount of tax over the years.
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 should take personalised advice.
Blevins Franks Financial Management Limited (BFFM) is authorised and regulated by the Financial Conduct Authority in the UK, reference number 179731. Where advice is provided outside the UK, via the Insurance Mediation Directive from Malta, the regulatory system differs in some respects from that of the UK. Blevins Franks Trustees Limited is authorised and regulated by the Malta Financial Services Authority for the administration of trusts and companies. Blevins Franks Tax Limited provides taxation advice; its advisers are fully qualified tax specialists. This promotion has been approved and issued by BFFM.
More about Blevins Franks tax advisors
For more information and personalised advice, contact Peter Worthington, Senior Partner at Blevins Franks, on +34 971 719 181 or firstname.lastname@example.org.
To keep in touch with the latest developments in the offshore world, check out the latest news on Blevins Franks Tax & Wealth Management Specialists.
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This article was written on the 08th of September, 2015.