Top tips for expat finances – Spain

Well, thank goodness that heatwave is over and I can venture out during daylight hours again! September and October for me are the absolute best times of the year here in Spain, great comfortable temperatures, less people (tourists) around and the sea has been warmed up over the summer.

This month’s Top Tips are as follows:

• 7P tax exemption rule – do you travel outside of Spain at least two weeks a month?
• Property price forecast UK & Spain for the end of 2023/2024
• Why should I speak to a Financial Adviser (a good one, that is 😊) in one sentence?
• 90’s nostalgia advert

7P Tax Rule

One of the most common questions people ask me is ‘As I am not on the Beckham Law, how can I reduce my taxes?’ One of the first questions I ask them is ‘how much time do you travel for work outside of Spain?’ If you travel for 2 weeks or more every month, in simple terms you might not to have to pay tax for those days you are away – a significant saving and you may have a tax exemption of up to €60,100 per year.

The key qualification factors are as follows:

• You must be a Spanish tax resident
• The company you are performing the work for must not be Spanish, must be based abroad and not a Spanish entity (but you can be employed by a Spanish company and have been instructed to carry out this work outside of Spain)
• You must physically be outside of Spain when conducting this work
• The country you are working in must have a similar tax system to Spain/have a double tax treaty

If you adhere to all these points then this tax exemption could be applicable for you – please ensure you take professional advice.

Property price forecast for the UK & Spain, for the end of 2023/2024

Property is, in my opinion, a great asset to hold and one that every investment portfolio should have. Just like ‘non-property’ investments, the value can go up and down. It can be more ‘hassle’ to manage taking into account tenants, taxes, issues with the property etc. but long term it has usually been a good investment. Governments are starting to make being a landlord a more expensive venture in the UK now – let’s see if Spain follows suit.

Since covid we have seen that property prices have generally boomed. However, the last 12 months or so things have started to change. New Zealand is in the midst of a property crash, down approximately 18% in a year. Canada is also in a property ‘recession’, down by approximately 15% year on year (most of you probably won’t have heard about these – the news outlets tell you what they want you to hear). Property, just like investment portfolios, does not only go one way, as in up. This year, for the first time in a long time (probably 15 years), I have been advising some clients to sell their UK property investments if they don’t think they will go back there, and it makes sense from a tax perspective. If you are living outside of the UK, at some point you are going to have a decent sized taxable gain/event on that property, (more so in Spain) and even if it is inherited by someone else, it’s unlikely that even then the tax will be avoided/mitigated.

In the UK, properties valued at up to around £600,000 are ‘still moving’, estate agents tell me. Many people over the next year or two will be coming off fixed rate mortgages they took out during covid (when interest rates were low) and their new mortgage repayments will at least double under current rates. They will have the choice to either swallow this extra monthly cost or sell (some will have no choice). Taking all of this into account, forecasters are predicting the UK property market will decline – it is already stumbling at best, with a slow down in sales and asking prices not being achieved generally.

In Spain things are slightly different, and one of the driving factors is that you can fix your mortgage rate for life, meaning you have much more stability of payments moving forward – they can only reduce (if you re-mortgage when rates come down…if and when they do). Research says that the property market is booming in Spain. However, with approximately 15% of the property bought in Spain last year acquired by foreign buyers, taking into account what’s happening elsewhere an economist might say this impact will inevitably have a ripple effect at some point.

Some professions will always be able to be performed from home, however many companies are also starting to ask employees to return to the office. This could put an end to ‘we can work from anywhere, let’s go and live on an island/in the countryside’.

In summary I would say the Spanish property market is at best coming to a slow down, at worst a decline of some proportion. Of course, if you are holding this property for the long term then this will be of less importance. But considering the prices are the highest now they have ever been, and mortgage rates are much higher than they were, taking on a property now might mean you ‘have’ to hold it for a long time to realise its value.

Why should I speak to a Financial Adviser, in one sentence!?

A good adviser will make you more knowledgeable, financially organised, take the strain away from your finances, make your money work hard for you and always be there for you with sound advice whenever you need it (even if they don’t know all the answers, they will do their best to get them for you), always putting your needs first.

Prudential 90’s advert number 2

Do you remember this timeless, funny classic:

Now you can Identify as a Tree……who would have known back then!

If you would like any more information, or to talk through your situation initially and receive expert, factual advice, don’t hesitate to get in touch with Chris.