Top tips for moving to Spain in 2023

Spain is an interesting and beautiful country with a fantastic lifestyle and very hospitable people. I have been in business here with my family for nearly 30 years and have learnt to identify the pitfalls. Here’s how to avoid some of them so you don’t spoil your early days here:

1. Visa and residency permits. It is important to seek advice from a lawyer, gestor or financial adviser specialising in assisting expatriates in Spain as to which visa or permit you need. Since Brexit this has become essential, especially for UK nationals who no longer have the right of abode in the EU.

2. Residency. Again, it is important to consult on the various ramifications of residency, particularly the timing of physically moving from your previous jurisdiction (such as the UK) to Spain. For example, the UK has the 90 day rule whereby if you spend more than 3 months there in any 12 months, you are deemed to be tax resident. In Spain, it is the 183 day rule. However, should your “centre of vital interests” be deemed to be here (if you have children in school here or you are running a business from here), then despite being physically here less than 183 days, you may well be deemed to be a fiscal resident.

3. Foreign pensions and tax efficient investments. While they may be tax efficient in your country of origin, they may not be here. For example, if you are about to draw down on your pension where there is a 25% PCLS (cash lump sum) available tax free, it may not be so here and could be taxed at full income tax rates. Likewise, UK ISAs and some UK National Savings products will probably not be tax free here. You should consider encashing these while UK resident and switching into tax efficient alternatives here (more on that later).

4. Choice of new country of residence. For me this is a no brainer. Over the years I have met many potential and future clients who let taxation rule their lives and dictate where they should live. I genuinely feel that if you and your partner (and children) want to be happy, choose the place that offers what you and yours need for a happy life. There are still too many people who choose their new home on the basis that there is less or no taxation. A frequent typical example would be a couple who spend 180 days in Spain, then 90 days in the UK, one month on a cruise and one month in Florida. While the husband might be rubbing his hands in “Fiscal Nomad” glee, his poor wife is just fed up wandering the world as Mrs Nomad and not being able to call anywhere “home” (please also remember my earlier reference to “centre of vital interests”).

5. Taxation. There are certain taxes in Spain which are foreign to many from other jurisdictions. Typically this might be wealth tax or inheritance tax (IHT) between spouses or common law partners. Please see an earlier article I wrote about how Andalucia might currently be considered a tax haven. The threshold on wealth tax has now been raised here (and in Madrid) so that most couples can avoid it. In Andalucia, there is effectively no more inheritance tax – if you plan carefully. By selecting the correct structure in which to hold your investments, IHT no longer applies between partners (more on this later).

6. Tax returns and declaration of foreign assets. Timing is all important. When you arrive here, it is important to seek advice as to when you should make your first tax return. As usual in Spain, there is the official rule and the unofficial version. As long as there is a provable intent to make one’s first return, one is not breaking the law. It is always easier to make a return for the tax year beginning after you arrive. This often coincides with the fact you have not been here for more than 183 days prior to the beginning of the tax year (1st January). Returns are made by end of June of the following year, so there is plenty of time to decide when to start. You can of course make a return for a period beginning part way through the tax year. This is sometimes done to coincide with date you left your country of previous tax residence but it is not essential. Modelo 720 (Declaration of Foreign Assets) is always made in March of the following year, with regard to the previous tax year. Note that certificates of tax residency here are only issued after you have made your first return.

7. Capital gains tax (CGT) timing. Whenever possible, dispose of any assets which are either CGT free in your previous country or attract a lower tax rate than here while still tax resident in your previous country. For example, your main residence in the UK is free of CGT when disposed of as a UK tax resident, but when you are tax resident here it would be regarded as a second home, even if you are only renting here. Your Spanish home in turn has special tax privileges as a Spanish resident when you come to eventually dispose of it (as an owner).

8. Health insurance. It is important to remember that since Brexit, UK nationals no longer have the privilege of cross border health care. It is however the rule that to obtain a resident permit or visa you must have Spanish recognised health insurance. To avoid stress, investigate options as early as possible.

9. Spanish compliant investment bonds. These are not only recognised here, but also across many EU countries and the UK (where they were pioneered). They are an incredibly effective tax efficient structure provided by several major insurance companies outside of Spain and with offices within the EU. Here in Spain, they are a flexible, 100% secure (under EU law) means of holding investment funds and cash almost without tax exposure. Only when making regular (income) or lump sum withdrawals is there a withholding tax on the growth element of the withdrawal. Even then, the tax rate is far lower than normal income tax. IHT can also be avoided and you can retain your previous investment manager to manage your portfolio. You should consult your new financial adviser in Spain for details.

10. Happiness is where the heart is. Observe these steps and you will begin with less stress and hopefully continue to happily live your lives here for the rest of your days. There is no place like Spain to have a satisfying and rewarding life (just beware when grandchildren heart strings begin to tug if they live somewhere else!)