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.
Viewing posts categorised under: Beckham Law
Top tips for expat finances – Spain
By Chris Burke
This article is published on: 18th September 2023
18.09.23
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.
The Beckham Law – Spain
By Chris Burke
This article is published on: 7th July 2023
07.07.23
A chance to change your financial Future Forever!
Many people are aware of the Beckham Law or soon find out about it (hopefully) when they arrive in Spain. In this article I am not going to explain it’s benefits because most people know these, but I am going to explain how being on this tax regime can potentially CHANGE your whole financial future with proper planning.
The big attraction regarding the Beckham Law for many is the low, one band income tax of 24% up to an income of €600,000 per year. Whilst this can massively increase your income over the 5 complete tax years you are here (if you start the Beckham Law in a January/February you pretty much have 6 years on this regime) and allows you to potentially save/put aside thousands over that period of time, for me the other benefits it offers can have the biggest impact on your financial future.
Your worldwide income is not taxable on the Beckham Law whilst tax resident in Spain, which is great if you have investments/assets outside of Spain which would normally need to be declared and tax paid. So, let me give you an example:
You have investments/pensions outside of Spain (let’s say in the UK for this exercise) that are around £1million in total, split into the following asset classes:
- Investment/ISA portfolio £300,000
- Stocks/shares £300,000
- UK pension £400,000
If you were not on the Beckham Law, each time you took money from these assets you would normally pay capital gains tax up to 28% on investments/Isa/stocks/shares and income tax up to 47% on the pension. Imagine if you could ‘encash’ these assets all-in-one go and do NOT pay any tax. Then moving forward set these up in a highly tax efficient manner. You wouldn’t pay any tax on these amounts ever and minimal tax on any gain they made, as these could be offset/deferred and mitigated. Well, normally (always depending on your situation) on the Beckham Law you can do this. You are not a UK tax resident thus there is no UK tax to pay (as long as you have informed that to HMRC) and as a Spanish resident on the Beckham Law there is also no tax to pay on income outside of Spain.
So, rather than pay up to 28% tax on the investments/gains (approximately £138,000 in the above example) and income tax of approximately 30% on the pension income (considering the pension income alongside your state pension also) gives a tax saving of approximately £6,000 per year… for life. Over 30 years that’s £180,000 plus inflation. You have also, very importantly, turned the pension (which has to adhere to pension laws) into a lump sum of money free of tax and are able to do with this what you wish.
Once you have ‘encashed’ these assets and paid zero tax ´potentially´, you can then plan for when the Beckham Law ends, particularly because these are highly tax efficient and minimal taxes would need to be paid on in the future.
This is just one way that smart, efficient financial planning can massively change your financial future that we implement for clients on a daily basis. Alongside this we work with successful, well known mainly UK known investment companies, including ethical and sustainable investing, to work on greatly increasing and secure our clients financial future.
One last note, UK property can also work this way, however savings tax is still payable in the UK on this as a non-UK resident, although there are some potential allowances.
Click here to read independent reviews on Chris and his advice.
If you would like any more information regarding any of the above, or to talk through your situation initially and receive expert, factual based advice, don’t hesitate to get in touch with Chris.
You can book a call or Zoom meeting with Chris below.
The Top Tips in Spain | May 2023
By Chris Burke
This article is published on: 15th May 2023
15.05.23
Summer is well on its way, lighter evenings and enjoyable temperatures are here for most and we will soon be commenting on how hot it is, I am sure!
For this month we shall be concentrating on the following topics:
- Driving licence swap now active
- UK investments/ISAs compared to Spanish options
- UK tax code changes – beware!
- State pension retirement options in Spain
Driving licence swap now active
From the 16th March 2023 the UK & Spain driving licence exchange, without the need to take a practical or theory driving test, is back at long last for those who are Spanish residents. From this date, as a resident you can legally drive in Spain on your UK driving licence, having 6 months to exchange.
You will also need to book a ‘Psicotecnico’ as I previously mentioned in my Newsletter and here is a link for the participating places to do this: Psicotecnico centres
So get your driving gloves back on and hit the Spanish roads! Be aware, this new exchange deal between the UK and Spain also means they will be sharing information on fines, speeding tickets and other incidents recorded (intoxication for example) so take note.
UK investments/ISAs compared to Spanish options
Many people who live in Spain are unclear or unaware of the difference between holding UK savings and investments compared to Spanish, and also what your options actually are here.
Unless you are on a specialist tax regime such as the Beckham Law, or potentially the new Digital Nomad Visa, Spain views UK savings and investments as non-Spanish compliant and therefore tax declarable/paid on any gains annually, EVEN if you do not access any of these monies. In the UK for example, normally the first advice any financial adviser will give their clients is to ‘max out’ their ISA and private pension contributions annually, as the tax saving alone makes this a great thing to do. However, once you become a Spanish tax resident these are not generally tax efficient and any gain on non pension related investments has to be declared and tax paid annually – therefore in many cases potentially nullifying the benefits of these.
So what can you do?
Most people speak to their Spanish bank and aren’t given any financial advice as such in respect of their circumstances and, in many cases, are sold investments that are not really what they are looking for, nor, dare I say, are any good from what my clients tell me!
When they have been put off by this they start looking around for something similar to what they had before they moved to Spain, and that’s when they find and/or are recommended to me. In Spain, we have access to several flexible investment solutions backed by some of the UK’s largest and well-known institutions. These products are EU regulated and highly tax-efficient, in essence similar to a UK ISA. We start by looking at your overall situation, carefully understanding what you are looking to achieve – whether that be a retirement plan, mid-term investment or complete financial planning for the whole family, taking into account university fees, or perhaps FIRE (Financial Independence, Retire Early). As the years go by and your money grows we provide ongoing advice to make sure these are optimised, taking into account life events that occur along the way.
UK tax code changes – beware!
On the 10th April this year UK state pensions were increased to rise with inflation up to £203.85 a week (10.1% increase) as the government restarted the ‘triple lock’ agreement it had suspended for one year. For most people receiving their UK pensions this was very good news, however for some it has created another problem depending on other income and how they are set up for tax purposes.
When leaving the UK as a tax resident it is important to inform HMRC. If you don’t, once your income rises above your personal allowance of £12,570 (with the state pension annually now £10,600) you will be subject to income tax in the UK and taxed accordingly.
Worse than that, this hike in UK state pension income has seen many retired people have their tax code changed, wrongly it would seem, by HMRC. In one case I have seen they were being taxed 40% on their income above the personal allowance. If the tax they are taking doesn’t look right a simple phone call to HMRC seems to solve the problem.
If you have set yourself up correctly as a non UK tax resident, then the only UK income you should be taxed on is property rental income. Most other income should not be taxed in the UK, but declared and tax paid in the country where you are tax resident.
State pension retirement options in Spain
Below I have listed the different options when you retire in Spain claiming a state pension – one notable new change is that to qualify for ‘partial retirement’ (also known as active retirement) you can only use Spanish contributions – previously you could include contributions from the UK.
Ordinary Retirement
Retirement age in Spain starts at 65, however for most it is 66 years and 10 months and by 2027 the number of years of contributions to retirement needed will be 38.5 years.
Flexible Retirement
After you retire, you can combine receiving a part of your pension with part-time work (reducing your full working day down to 50%). Your pension is reduced proportionally.
Partial/Active Retirement
If you have not reached the legal retirement age, you can combine a part-time employment contract with receiving part of your retirement pension.
**Reminder – to qualify for the Spanish state pension in general you must have contributed for 15 years, of which two at least should fall within the 15 years immediately preceding the start of your entitlement.
If you would like any more information regarding any of the above, or to talk through your situation initially and receive expert, factual based advice, don’t hesitate to get in touch with Chris.
Tax tips for living in Spain 2023
By Barry Davys
This article is published on: 3rd April 2023
03.04.23
Whether you are thinking of moving to Spain or already living here, tax is a major part of your financial life that needs to be considered and planned for carefully.
1. In the UK, probably the best savings vehicle is an Individual Savings Account (ISA). This is because the income and capital growth is free of income tax and capital gains tax. It is, however, a UK tax scheme and is not recognised in Spain. Selling your ISA whilst you are still a UK tax resident can save you paying tax in Spain both on an ongoing basis and when you sell. There are also options where you can replace the ISA investments with very similar ones in Spain in a tax efficient manner once you have sold your ISA.
2. If you can, take your 25% tax free lump sum from your pension before you come to Spain. Again this is a UK based tax rule and it does not exist in Spain. You may be able to take part of a pension without tax in Spain, but there are rules and conditions. In the UK it is a clear rule and we recommend taking advantage of it. Like the ISA it is possible to reinvest the money with similar investments as you had in your pension on arrival in Spain.
3. You can pay into a UK private pension for up to five years on leaving the UK and continue to receive tax relief on the contributions. You will need to start the pension before you leave the UK. The limit is a maximum of £3,600 per annum but you only pay £2,880. The government will pay your pension company the difference to make it up to £3,600. A husband and wife paying into a pension for five years would qualify for a UK Government “top up” of £7,200. At the end of five years they would have a pension pot of £36,000 which will remain free of income tax and capital gains tax in Spain, until you start taking money from the pot.
4. Do you need to top up your National Insurance Contributions to improve your UK state pension? It is easier to do this before you leave the UK.
5. The sale of a main residence in the UK is free of capital gains tax. In Spain, the rules are different and you may have to pay capital gains tax on the change in value between the purchase price and the selling price of your home. As an example, a £200,000 gain (not at all uncommon if you have had your house for 10 years) could mean a tax bill of £44,800.
6. If you and your family are considering inheritance tax planning, consider making or receiving gifts before you leave the UK. These gifts can be potentially exempt from UK inheritance tax. In Spain, they would be subject to gift tax.
Once you are living in Spain
7. Are you eligible for the “Beckham Law”? This is a law that was introduced to encourage skilled workers to Spain. The tax rate is set at just 24% for your employment income for a period of five complete Spanish tax years. This is the part of the scheme that you will see most heavily promoted.
However, the scheme also allows you to receive capital gains and investment income from outside of Spain without paying Spanish tax. Careful structuring of your affairs can lead to a plethora of planning opportunities. Perhaps the biggest opportunity is selling your UK business and paying 0% tax on the sale. For further information please email barry.davys@spectrum-ifa.com
8. If you are approaching retirement or retiring to Spain, it is possible to save tax on the income you receive by planning the source of your income. As a brief example, pension income is generally taxed as employment income and taxed at your highest rate. Drawing funds from an investment can result in tax as little as 2%. From another source there can be 0% tax. To benefit from this planning it is important to have an adviser who understands your situation and requirements at the same time as having a clear understanding of how investments are taxed in Spain.
9. Different investments attract different tax treatments in Spain in the same way as they do in other countries. There are investments in Spain that are taxed more than others. Try to use the lower tax ones where the investment matches your requirements. You can benefit from many years without paying income tax and capital gains tax.
10. In Spain, inheritance tax is based on taxing the person receiving the inheritance rather than taxing the estate of the person who has died. If inheritance tax is a concern, with the right advice you can build a plan which manages the amount of tax due. The bedrock of the plan should be that you are not left short of money in later life. Your plan should then match your personal requirements. Some planning is simple and straightforward, so it is worthwhile looking at inheritance planning before events overtake you.
11. Are you considering returning to the UK? It is also worthwhile thinking about the possibility of an unplanned return to the UK if one partner were to die, for ill health or ill health of a family member in the UK such as a parent. If a return to the UK is a possibility, make sure you have the type of investment which will not tax you in the UK for the time you have spent in Spain.
UK pension consolidation living in Spain
By Chris Burke
This article is published on: 1st February 2021
01.02.21
Now more than ever, with the UK leaving the EU, if you have a UK pension/pensions you will need to make sure that they are being properly looked after and managed. This needs to be by someone who can legally practice in the country where you are tax resident. Many UK pension companies are no longer able to give advice to those living outside of the UK, meaning you could have difficulties accessing, managing and securing your pension moving forward. A local adviser also has the advantage of knowing the local regulations, so is able to make sure you are adhering to the rules in addition to being as tax efficient as possible.
When people approach me to speak about their UK private or company pensions, they usually are not clear on:
-
- What they are invested in, and whether the strategy is appropriate given the stage of life they are at now
- How investment decisions are made, who makes them and when
- The costs of management, what they are and are they efficient
- How to access the pensions, particularly doing it tax efficiently living in Spain
- How to consolidate multiple pensions, reducing costs and creating greater annual gains
When I ask most people what their pensions are invested in, what the annual returns are and when they last reviewed this, they usually don’t know or can’t remember. One of the reasons for this is that being outside of the UK makes all this all the more difficult to manage, and even more so now after Brexit.
Or, if they do know the answer to my questions, they have now found they cannot receive any advice from UK pension companies or UK based financial advisers moving forward.
Consider consolidating several pension pots
If you have several different pension pots, there are potential advantages if you consolidate them into one. These include:
- Simplification of administration and keeping track of your pensions
- Managing your pension savings more easily and effectively, including potential tax liabilities knowing local, Spanish rules
- Saving money if you can transfer from higher-cost schemes to a lower-cost one
- Opening up a greater choice of investments if you are consolidating your pension pots into a flexible scheme
In many cases, the first step would be to locate your pensions and then evaluate what you have, how they work, what your options are and then have these managed effectively.
I help clients consolidate their UK pensions, managing them efficiently and effectively, planning for when they want to access them integrating with their tax situation and lifestyle. We can help you achieve all this, giving ongoing advice and moving forward making sure you access you pension tax efficiently, adapting to your life as it changes along the way.
For example, if you are over 55 years of age and currently on the Beckham Law, did you know you can cash your UK pensions in, potentially paying no tax in the UK, and potentially none in Spain? This is because on the Beckham Law, all ‘non-Spanish’ income is tax exempt (this depends on your personal circumstances) and being a NON-UK resident, you have no tax liabilities there either.
If you would like to discuss your various UK pensions and what your options are, feel free to get in touch.
Tips on Moving to Spain before Brexit
By Chris Burke
This article is published on: 24th July 2019
24.07.19
*UPDATED 1st January 2020
With the UK likely to leave the EU in 2019, many people are making the move and leaving the UK whilst it is arguably still easier to do so than it will be after Brexit. But what are the key things you need to do in order to be organised from a personal financial advice point of view? Here I have listed my ‘Top Tips on moving to Spain’, the main areas I point people in when making the move, or having just arrived in Spain. This could save you a lot of time, money and headaches, and is only a small example of the way I help clients living here in Spain.
- Confirming Non UK Resident Status with the HMRC
- Potential Tax Rebate
- National Insurance Contributions Whilst Abroad
- Checking Your National Insurance Contributions
- Becoming Tax Resident in Spain
- Existing Investment Organisation
- Inheritance
- Healthcare
- Life Insurance
- Wills
- Property
- Private Pensions
- Banking
- Why Move to Spain Before Brexit
Please click on each link below to find out more regarding that area of expertise:
Confirming Non UK Resident Status with the HMRC
Tell the HMRC that you will no longer be a UK resident by filling in form P85, informing your local council and the UK state pensions department. This is important for the following reasons:
Potential Tax Rebate
In many cases you could receive a tax rebate, depending on which part of the tax year you leave in. Tax is taken from your wages and worked out on what you are paid each month, starting with the first month. Therefore, if your final UK salary payment is in September having been earning £4,000 per month, for example, that means the following months until the end of the tax year, in March, you won’t be paid anything. Therefore, because the HMRC would have been taxing you on the basis of completing that financial year, the tax you owe could well be reduced and in many cases a rebate will be applicable.
National Insurance Contributions Whilst Abroad
You can apply for Non Resident relief when living abroad, meaning that you can pay National Insurance contributions in the UK at half the cost, so around £11 per month (which mathematically is worth doing, considering life expectancy in Europe of 84). You can also backdate these up to 6 years if you have been out of the UK that long and haven’t been paying.
www.gov.uk/national-insurance-if-you-go-abroad
Checking Your National Insurance Contributions
You can see how many years National Insurance contributions you have by entering your number on the link below:
www.gov.uk/check-national-insurance-record
Becoming Tax Resident in Spain
It is important that when you move to Spain you choose the right tax regime to be part of. For example, if you are working for a Spanish entity, you may be able to apply for The Beckham Law, which means all worldwide income will be taxed for 5 complete tax years at least, at a flat rate of 24% (as opposed the normal rate of up to 46%).
Or, if you live in Spain, work for a Spanish company and spend up to two weeks of the month outside of Spain on business, you may be able to deduct tax for every day you are away proportionally. So, that could mean up to half the tax payable.
IMPORTANT – Some of these tax regimes only give you a limited time to apply for them. For example, within 6 months of paying tax here you have to apply for the Beckham Law.
It may also be of benefit to set up a Spanish company instead of becoming self employed, the main rule of thumb here being if your income is likely to be consistently over €60,000 per annum.
Existing Investment Organisation
Any investments you have when you become tax resident in Spain (that is, spending more than 6 months a year in Spain and having your economic centre of interests there being the deciding factors) will be reportable in Spain and might not be as tax efficient as they should be. For example, many asset classes such as ISAs or stock/share/fund investments (unless structured in a certain way) are declarable each year and tax is payable on any gains, whether you take any of that money or not. In some cases, you can have your assets organised so this is not the case, and the tax can potentially be reduced when you do withdraw any money.
Inheritance
In Spain, rules on giving away your assets are very strict and you are limited in what you can give away per year without incurring any tax. This is an area that is worth considering and organising before you leave the UK. In the UK there is usually no inheritance tax to pay on small gifts you make out of your normal income, such as Christmas or birthday presents. These are known as ‘exempted gifts’. There’s also no inheritance tax to pay on gifts between spouses or civil partners. You can give them as much as you like during your lifetime, as long as they live in the UK permanently. However, other people you gift to will be charged inheritance tax if you give away more than £325,000 in the 7 years before your death. See the sliding scale below:
In Spain, gift tax depends on the age of the person and their relationship to you. In many circumstances you receive a €100,000 exemption, following which a sliding scale up to 20% is applied in tax. Spouses can claim up to 99% relief. It is imperative to look at this before you move.
| Years between gift and death | Tax paid |
| less than 3 | 40% |
| 3 to 4 | 32% |
| 4 to 5 | 24% |
| 5 to 6 | 16% |
| 6 to 7 | 8% |
| 7 or more | 0% |
Healthcare
When you first arrive in Spain, registering at your local health centre should be a priority in case of illness. The requirements can change, but at present the following should be sufficient for you to acquire an individual health card (Tarjeta Sanitaria). This will enable you to register with a doctor, visit a health drop in centre (in Barcelona a Capsalut) and purchase prescription drugs:
- NIE (tax number/residence certificate)
- Rental contract of your apartment
- Social Security number
- Empadronamiento (document from the town hall confirming where you live)
Life Insurance
Insurance in Spain, in general, can be much more expensive than in the UK, and life insurance is an example of that. Many insurance companies will allow you to carry on with the life insurance you have in the UK, but you must get this confirmed in writing by them. To give you an example, I have seen an insurance cover in the UK at £22 per month, costing over €100 euro per month in Spain, and the cost is not fixed for life like it generally is in the UK.
Wills
Foreign residents of Spain are not permitted to give away more than the freely disposed part of their estate (one-third) as the rest is reserved for the ‘obligatory heirs’. If an international or Spanish will is made stipulating that the laws of a person’s home nationality apply, however, no aspects of Spanish inheritance law will apply to either Spanish or worldwide assets. In layman’s terms, if you are British, you can choose UK law and therefore leave your assets as you see fit without having to adhere to Spain’s rules.
If your estate is dealt with under Spanish inheritance law, ‘forced heirship’ rules apply (known as the ‘Law of Obligatory Heirs’ in Spain). This means there are restrictions on how you distribute your estate, as a certain percentage needs to be set aside for certain relatives.
The Law of Obligatory Heirs states that if the deceased was married at the time of death, the spouse keeps 50 percent of all jointly owned property. The remaining 50 percent is put towards the estate. The estate is divided into three equal portions:
- One-third is divided between surviving children in equal shares
- One-third is reserved for surviving children but can be distributed equally or unequally according to instructions in a will. The surviving spouse retains a ‘life interest’ (usufruct) in this part of the estate and the children do not inherit until the spouse dies
- One-third can be disposed of freely in a will
- If there are no children, then surviving parents are entitled to one-third if there is a surviving spouse, or 50 percent if not
Property
This is currently a very popular asset to buy in Spain. Key points to be aware of compared to the UK are the extra taxes/costs (approx 13% costs on top of the purchase price of a property in Barcelona) and that the market is not as regulated as the UK, which means that there are estate agents out there that are just interested in their commission. You MUST make sure you purchase a property with a Cedula (certificate that the building has passed health and safety required by Spanish law) and certificado de habitabilidad (this means the property meets the minimum standard for living in), otherwise, you might not get a mortgage and also it will be difficult to sell later as it is not a legal place to live.
If you have never lived in the place you are moving to, I strongly suggest renting an apartment for a period of time, maybe even a couple in different Barrios/areas. That way you will get a feel of what works for you. In many cases, renting actually works out cheaper than buying somewhere, even taking into account the recent rental price increases.
Private Pensions
There are sometimes tax implications on moving your pension outside of the UK, which many people have done for the resulting benefits. In the last couple of years, 25% taxes have been implemented depending on where you move your UK pension to. There are opinions that this charge could apply to the EU, should Brexit go ahead. If you are planning to move abroad, either before or after Brexit, looking into this possibility will give you the options and knowledge to assess and make an informed decision.
Banking
Banks in Spain can be very ‘charge’ friendly and don’t always fully explain how your account works. Usually when you arrive banks will give you a ‘Non resident’ account, incurring extra costs and charges. However, you can quickly open up a ‘Resident’ bank account with no everyday running costs, such as bank transfers or costs for withdrawing money from their own ATMs. To qualify for a ‘Residents’ bank account and bypass potential costs you need to transfer in €600-€700 per month.
Why Move to Spain Before Brexit?
There will be certain criteria to meet to be able to move to Spain after Brexit, in particular if you are self employed or own your own business. This is expected to include a year’s cash flow in the bank, private medical insurance, proof that your business is viable and if retiring, a minimum income of around €2,200. I have a much more in depth article you can read if you wish to know more about this.
If you have questions relating to these points, or anything similar, don’t hesitate to get in touch.
Qu’est ce que la “Loi Beckham”?
By Cedric Privat
This article is published on: 20th May 2019
20.05.19
Depuis 2005, le Real Decreto 687/2005, également appelé “loi Beckham” (David Beckham en fut le premier bénéficiaire), permet aux nouveaux résidents espagnols d’obtenir une importante réduction fiscale.
En effet ce régime spécial des impatriés permet aux contribuables d’être imposés au taux fixe de 24 % jusqu’à € 600 000 de revenus annuels, puis à 45 % une fois dépassé ce seuil, et non au barème progressif de l’impôt sur le revenu ou IRPF (“Impuesto sobre la Renta de las Personas Físicas”).
Il s’applique la première année de résidence et les 5 années suivantes. Toute personne ayant un nouveau contrat de travail en Espagne (ou statut d’administrateur) peut potentiellement opter pour ce régime auprès de l’administration fiscale (sauf si vous avez résidé en Espagne pendant les 10 dernières années).
La demande doit être déposée dans les 6 mois à compter du début de votre activité qui apparaît sur l’inscription à la sécurité sociale espagnole. Quant à l’impôt sur le patrimoine, seul votre capital en Espagne sera susceptible d’être taxé.
Je me tiens à votre disposition si vous souhaitez de plus amples informations sur ce sujet, ou si vous désirez opter pour ce régime fiscal.
N´hésitez pas à me contacter
The Beckham Law 2019
By Chris Burke
This article is published on: 8th March 2019
08.03.19
*UPDATED 1st January 2020
Also originally known as ‘The Special Displaced Workers Regime’, The Beckham Law has been in place since it was passed by Spanish Tax decree in 2005. The Law has undergone two reforms/changes since its inception (2010 and 2015) and was originally open to all foreign workers living in Spain adhering to certain conditions.
Why was it brought in?
In essence, it was designed to attract brains, talent and wealth from all over the world, encouraging high earners to become Tax Resident in Spain (spending more than 183 days a year living there) and thus pay 24% income tax (IRPF), as opposed to rising up to 43% (or higher in certain circumstances). It was given its name by one of the first high profile sports people to use it, David Beckham, when he signed for Real Madrid.
Who can take advantage of it?
The main criteria to be eligible for the Beckham Rule are:
- You must not have been a Spanish resident in the last 10 years when applying
- You must be employed by a Spanish company, or a non Spanish company but with a permanent office here in Spain (You can be a director of a company but hold no more than 25% of the shares)
- The rule can be used for the remaining Tax year you start in, and the following five
- The application MUST be made within 6 months of starting your employment in Spain
- You have to be resident in Spain and also have at least 85% of your work interests there
Reforms/Changes
The Law became infamous and a perfect fit for Spanish football clubs to buy some of the best well known footballers in the world, since the player’s tax would be much lower than in other countries. However, in 2010 the law was changed to address this popularity with high earning footballers, and a rule was brought in to limit the annual earnings applicable to €600,000, three years after David Beckham had left Spain.
Then, in 2015 they went one step further and completely excluded professional athletes from applying for this. However, those already on a contract were not affected. They also removed the limit of €600,000, but any income over that level is now taxed at 45%. Note that any capital gains would adhere to the current rules of 19%, 21% and 23% respectively (not applicable for the first €6,000).
Other Major Benefits
Critically, one of the major benefits of this rule is that under it, you do not pay taxes on any gains outside of Spain. So if you sell an asset with a taxable gain, such as a business or property in another country, you could make a considerable saving.
Moving on from this and to a more regular scenario, you would not pay tax on any property rental income, bank account interest, investments or savings in another country.
You would also not be required to submit certain other annual reports such as the ‘Modelo 720 Overseas Assets declaration’ during this period of time.
Why you might not want to apply for the Beckham Rule
There is no minimum annual earnings to apply, however you do not receive any personal income allowances, thus a general rule of thumb is that earning over €60,000 might make it worthwhile for you to apply.
The other reason you might not want to apply is that if the country you are from has a less favourable tax rate, then paying capital gains tax in Spain could be better.
If you have any questions regarding this, or would like to discuss applying for it or your personal situation, please contact us through the form below:
Source GM Tax Consultancy, Barcelona
Are you moving to Spain?
By The Spectrum IFA Group Spain
This article is published on: 11th July 2018
11.07.18
If you are considering a move to Spain, or have recently arrived, there are a few basic steps to follow which will help with managing and improving your finances. The list below is intended for general guidance only, but refers to some of the key points consider as part of your early financial planning.
First, an update on Brexit
Whilst departure terms between the UK and EU are yet to be finalised, the status of British expatriates living in Europe has largely been agreed, in principle at least. From state pension escalation, to health care cover and rights on residency and employment, first phase negotiations concluded (eventually) with consensus on protection of citizens’ rights.
Of course, agreement still needs to be formalised and as the EU/UK progress agreement highlights, ‘nothing is agreed until everything is agreed’. But for now, at least, it is looking like existing expatriates’ rights are likely to be recognised beyond April 2019.
Buying a property
From the initial and legally binding ‘pago de arras’, the legal process of buying a property is markedly different from UK conveyancing.
It is important to engage a knowledgeable lawyer, ideally English speaking if you do not speak Spanish. Your lawyer will liaise with and arrange your meeting with a notary, which is legal a requirement in Spain for the property buying process. Resident and Non-resident tax obligations vary and require reviewing on an individual basis.
Mortgages
Seek guidance on the wide range of borrowing options available, from the national banks to smaller regional lenders. An independent mortgage specialist will identify the most competitive and flexible mortgages available and ensure suitability for your specific borrowing requirements, as well as introducing you to trustworthy and reliable legal and professional services, a must in Spain when purchasing or selling property. It is important to note that banks do not make mortgage offers without the property being secured. (See below for our independent mortgage brokers, Spectrum International Mortgages Spain)
Bank accounts
Familiarise yourself with the various current and savings accounts available, from the cuenta corriente (current account) to tax efficient ‘Cuentas de Ahorro’, or savings accounts. It is important also to note that bank managers tend to move branches frequently, so finding a bank you like is more important in the longer term than a friendly bank manager or ‘Director’.
Tax Residency
Please note you cannot choose where to be tax resident. The law dictates when this will happen and you do not necessarily have to complete any forms to be treated as tax resident. If you meet one of these following conditions you will be a tax resident:
● If you are in Spain for more than 183 days in any calendar year
● If your “centre of interests” are considered to be in Spain eg. If your main income is in Spain, your main home is in Spain or if your spouse and children live in Spain.
● Residency commences from the first day that you declare Spain to be your permanent home.
Tax declarations
When you move to Spain, the Spanish tax authority becomes your controlling tax authority, even if you pay tax elsewhere. The tax year is the calendar year. Worldwide income needs to be declared annually (between April and end of June) and the relevant form is called “La Renta”. (Income taxes and capital gains tax are called IRPF). UK source income from dividends and property rental, whilst taxable in the UK, should also be included in your Spanish tax return. The double tax treaty between Spain and the UK should ensure an accurate tax assessment, but it is important to check that liabilities have been calculated correctly.
Note too that tax-free investments in the UK, such as ISAs and premium bonds, do not hold the same favourable status in Spain. For permanent and long-term Spanish residents, there are tax efficient alternatives available (see Investment section below). Without exception, make full disclosure of income and assets, recognising that there is automatic exchange of tax and financial information between the two countries, under global Common Reporting Standards adopted by the EU in 2017.
The Modelo 720 or M720 is a requirement for all Spanish residents, including foreigners, to complete. It is an informative overseas asset declaration for assets of over 50,000 euros including property, banks accounts, offshore investments, shares and other assets. This declaration needs to be completed by March 31st following the first full fiscal year of residency. As this declaration can only be completed electronically we highly recommend the involvement of a qualified ‘gestor’ or tax accountant, as hefty penalties could be imposed for providing erroneous information.
Wealth tax obligations change on a regular basis and vary between autonomous regions, so obtaining the latest local rates applicable is important.
Beckham Law
For employed individuals earning over 60,000 euros pa and having not been resident in Spain for the past 10 years before becoming tax resident, the possibility exists of being paid as a non-resident for tax purposes and up to five full tax years. The rate of income tax is 24% plus you avoid the need to declare M720. It is available to company owners as long as they (and their immediate family) do not own more than 25% of the shares. The ability to join this scheme needs to be assessed on a case by case basis.
Inheritance tax
This is a subject that causes some confusion on moving to Spain. In Spain, it is the beneficiaries that are assessed for Inheritance tax. In the UK it is the estate of the person who has died that is assessed for Inheritance tax. This means that different planning is required in Spain although it is possible to plan for both the UK and for Spain in some circumstances.
Like wealth tax, inheritance tax varies from autonomous community to autonomous community. Advice in the community where you are living is therefore very important.
Healthcare
Spain’s comprehensive and efficient healthcare system is considered to be at least on a par with the UK and better in many areas. It is generally accessible to expatriates but the extent of cover available to you, and how to secure access to it, depends on individual circumstances. Eligibility for a Tarjeta de Salud or holding suitable private health insurance, or a combination of the two, are essential to avoid unexpected and expensive bills for medical treatment. This especially applies to dental treatment which is typically very costly in Spain.
Currency exchange
Relying on your bank for foreign exchange transfers is generally an expensive option. Numerous currency transfer specialists provide not only competitive terms and secure, swift transactions, but a range of other benefits including on-line facilities for regular payments, forward contracts and rate tracking alerts.
Pensions
Pensions are a technically complex subject where reliable advice is essential. From understanding UK state pension entitlement, to reviewing all existing personal and/or occupational schemes, there is scope to increase the value, flexibility and security of your retirement finances. British expatriates living in Europe currently enjoy pension freedoms and transfer opportunities that are unavailable elsewhere. However, in relation to both Brexit and ongoing UK pension reform, it is unlikely this flexibility will remain beyond the short term.
Even if Brexit transitional arrangements encourage a smoother economic separation, further changes to pension regulations are already on the UK domestic agenda. Consult an authorised, qualified and experienced specialist to arrange a comprehensive review of your existing pension arrangements. Be wary of any recommendation to transfer a UK pension without receiving a detailed report which explains clearly why a transfer is in your best interests.
Wills and estate planning
Spanish forced heir-ship rules restricts the extent to which you can freely transfer wealth during your lifetime. It also, unless you have planned properly, governs how your estate is distributed upon death – most notably, prescribed heir-ship laws override individual choice when it comes to nominating beneficiaries. However, if you are a British expatriate living in Spain, EU legislation allows you to specify that your estate be administered according to the laws of your country of nationality, rather than your country of residence. Doing so provides valuable flexibility and control over the eventual distribution of your estate. Note this relates to probate law and is unconnected to inheritance tax law.
It is important to establish and maintain a valid will or testamento which fully reflects your intentions. A notary will prepare your will in the appropriate format.
Investments and savings
Recognising that UK assets are taxable in Spain, and that tax free in the UK doesn’t translate to the same in Spain, consider switching to Spanish approved tax efficient investments. Care is needed with possible tax consequences on the disposal of UK assets, so always seek professional advice before restructuring. Seguro de vida are widely regarded as the most tax efficient solution available in GBP and EUR (and other currencies), in English language and with investment flexibility to match individual objectives and risk profiles. Technically a life insurance policy, but in practice an investment vehicle and this is the most tax efficient means of investment in Spain –
Low cost, straightforward, beneficiary nomination, IHT exemptions/reliefs, capital access, income option, portability (UK return),
IFA
Even for the financially experienced it is worth seeking professional advice, if only to ensure that all available investment and tax planning opportunities are being fully utilised. Only deal with an independent, appropriately authorised firm and ideally someone living and working locally who has been recommended by other expatriates in the area.
The regulatory status of an independent broker can be checked on-line at; http://www.dgsfp.mineco.es/regpublicos/pui/pui.aspx, and at any initial discussion with an individual you should be informed about the advisory process, from fact finding and presenting suitable recommendations to responsibility for investment management and ongoing client servicing.
Changes in tax for International people living in Spain after the EU Referendum. What changes and what does not?
By Barry Davys
This article is published on: 6th July 2016
06.07.16
If the UK leaves the European Union what impact does this have on taxation for international people living in Spain?
The framework for taxation in all countries is based upon the following:
- Are you tax resident according to the laws of that country?
- Which tax authority is the controlling tax authority for your Worldwide income and gains?
- If you have income or gains outside of the country where you are tax resident, is there a double taxation agreement between the country where you are resident and the country where the income or gain is made?
For those of us living in Spain, the simple test is are we in the country for more than 183 days in any calendar year? If yes, then we will be Spanish Tax resident.
If we meet the residency requirement Spain is our controlling tax authority. This means we have to report our Worldwide income and gains to Spain and our main payment of tax is in Spain.
Double Tax Treaties
The OECD, UN and USA have set up model frameworks for Double Taxation Treaties. Most countries use these frameworks. However, the Treaties are between individual countries. Even if the country is in the EU there is NO EU wide double taxation agreements. Therefore, if the UK leaves the EU it will not affect the double taxation agreement between the UK and Spain. As an example, Spain has 88 tax treaties, 66 of them with countries outside the EU and even if the UK leaves the double tax treaty should stay. The tax treaty between Spain and the UK covers both income and gains.
Beckham Rule
It is not expected that there will be any changes to the Beckham rule (Impatriate Tax Regime). It is available to people from around the World. Therefore people moving from the UK to Spain should still be able to benefit from the lower rate of taxation for five full tax years.
Where we do expect changes
There is a potential economic impact in both Inheritance Tax and Exit Taxes if the UK leaves the EU.
Inheritance Tax
In September 2014, the European Court of Justice instructed Spain to change its rules regarding Inheritance Tax where the deceased person or the person receiving the inheritance was in another country in the European Economic Area (EEA). The effect was to allow these people to claim the allowances that are available to inhabitants of Spain, rather than them being taxed on a special “National” rate. This was because the National Rate resulted in higher taxes.
If Britain is now longer a member of the EEA, it is quite possible that we will have to return to paying the national rate of inheritance tax. Please note, it is possible for the UK to leave the EU but not the EEA and therefore will still qualify. Whilst the loss of the local allowances will only put us back to the situation two years ago it will still be a backwards step.
There are several pieces of Inheritance Tax planning that you can do to reduce the burden of Inheritance Tax. HOWEVER, we have not left the EU, there is some debate about whether we will ever leave the EU and we may yet become part of the EEA. We strongly recommend, therefore, that you discuss the possible planning methods now but do NOT implement any planning on the basis of the UK leaving the EU. This is because once taken, many of the planning steps cannot be undone.
Exit Tax
Exit tax is chargeable to all taxpayers that have been in Spain in at least 5 years of the last 10 years whilst Spanish Tax Resident if:
The market value of the shares and collective investments held exceeds a joint value of Euro 4 Million
or
Only Euro 1 Million if the person holds 25% or more of the shares in a company.
However, currently, if the person moves to another country in the European Economic Area with whom an effective exchange of information exists, the gain will only need to be declared and Spanish Exit Tax paid if during the next 10 years the shares are sold or the person loses his residency in the EU or in the EEA.
It the UK leaves the EU and does not get EEA membership, Spanish Exit Tax would become payable on departure.
CRS – Automatic exchange of information between countries
The OECD has also introduced a common framework for the automatic reporting of information from one country to another of the financial affairs of people who live in the second country, for example UK to Spain where a British person lives in Spain. This framework has been updated and common formatting of reporting leads to common software and much easier analysis of the information.
Please be aware that these reports will still take place even if the UK leaves the EU. Currently there are 101 countries using this common software and standards.