Setting up home in Mallorca is always a pleasure, whether you plan to live here permanently or enjoy regular visits to this beautiful island. It has so much to offer in terms of way of life, climate, entertainment, food and drink, pastimes, your social life etc.
And of course there are some lovely properties here and opportunities to personalise them to suit your lifestyle.
You may have a checklist of jobs as you settle into the island, and it is important to include reviewing your financial planning into that list.
You need to look at Spanish legislation and tax regime to see if you need to make any changes. And it is important to ensure your wealth management is personalised and designed for you – taking your current and expected future circumstances into account, time horizon, aims for yourself and your family, and risk profile into account.
The starting point when living or spending time abroad is to understand how you become resident for tax purposes. Tax residency in Spain is not just about day counting. You could be resident even if you do not live in Spain but your spouse and/or minor dependent children do, or if your centre of economic interests is here. So you need to make sure you get this right.
You also need to know how your home country’s residence rules could continue to apply to you. For example, UK nationals need to understand the UK Statutory Residence Test and make sure you apply the rules correctly.
If you are a UK national already living here but have not yet sorted out your Spanish residence, it may be a good idea to do so now, before Brexit. Under Spanish domestic law, you are either resident or non-resident for the whole tax year; there is no split year treatment.
If you arrive with the intention of staying here indefinitely during the first six months of the calendar year, you are likely to be regarded as resident in Spain for the full calendar year.
Spanish taxpayers have had a high tax burden over recent years, though income tax rates have improved a little now. They currently range up to 47.5% in Islas Baleares.
Spain also currently imposes an annual wealth tax, which generally hits those with worldwide assets worth over €1 million. Spanish residents are liable on their worldwide assets; non-residents are liable on Spanish property and any other local assets.
There is a personal allowance of €700,000 plus an extra allowance up to €300,000 for your main home (the main home allowance is not applicable for non-residents). You need a thorough understanding of the Spanish tax system and how it applies to you.
Only then can you establish what tax planning steps you can take. Because there is the good news – there are often ways to lower taxes on your investment income, assets, pensions and estate. This is not an area for ‘do it yourself’ financial planning, you do need specialist guidance. Getting it wrong could be costly.
Succession tax in Spain works quite differently from UK inheritance tax. The rates and allowances depend on who the beneficiary is, where the deceased and the beneficiary are resident, and where the assets are located. Rates, allowances and exemptions vary across regions.
This leads me on to succession law. Spanish law requires a parent to leave two-thirds of their estate to their children, even bypassing the surviving spouse. However, under the EU succession regulation ‘Brussels IV’, foreign nationals can elect, via their will, for the law of their country of nationality to apply to avoid Spanish forced heirship rules. This only applies to succession law, not tax.
Another important tax issue to consider early when moving to Spain are the tax implications of buying and selling property. When is the best time to sell your property in your home country or elsewhere? When is the best time to buy in Spain? You could easily end up paying tax that could have been avoided, so look into this carefully.
Pensions are another key issue. UK retirees now have many options under the 2015 UK pension freedom, but you need to weigh them up, looking at how they work for you and all the local tax implications if you are living in Spain.
If you have not yet started drawing your pension, seek advice before you do. Last but certainly not least, you need to review your savings and investments.
You need to make sure that they are structured in the most suitable way for your new circumstances and objectives, always taking our appetite for risk into account.
At the same time, you want them to be structured in the most tax efficient way for Spain, as well as to meet your estate planning wishes. So overall, it may be time for some restructuring to ensure you do not pay any more tax than you need to.
The sooner you carry out your tax and wealth management planning, the sooner you can get on with enjoying your new life in Spain. Blevins Franks has decades of experience advising expatriates in Spain and specialise in providing personalised, cross-border wealth management solutions.
We have 22 offices in Spain, France, Portugal, Cyprus, Monaco, Malta and the UK.
We have written the Blevins Franks Guide to Living in Spain, a 300-page book which provides a wealth of information on the tax and financial aspects of living in Spain or owning property here.
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.
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.
For more information and personalised advice, contact Blevins Franks on +34 971 719 181.
To keep in touch with the latest developments in the offshore world, check out the latest news on Blevins Franks Tax & Wealth Management Specialists.
Related articles to tax for foreigners living in Spain.
Blevins Franks Mallorca specialises in giving advice for tax-driven, wealth management investments. […] Blevins Franks Tax & Wealth Management Specialists
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.
This article was written on the 27th of October, 2016.
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