Ten top tax tips for expatriates living in or moving to Spain

ALWAYS consult an expert so that you don’t end up paying more than you need to

1. Always discuss your situation with an experienced and knowledgeable gestor/accountant. Taxes in Spain can be very different to other countries in Europe and might not be as onerous as you think. If you don’t speak to an expert then you could end up paying more tax than you need to.

2. Just because you are spending three months of the year in the UK does not mean you automatically qualify for UK tax residency when in fact you are actually spending more of your time in Spain. The double tax treaty will not cover you in this case.

3. If you are Spanish tax resident i.e. if you spend more than 183 days a year and/or your social economic interest (family, house, etc) is in Spain, then the Agencia Tributaria can find you. There is always a paper trail as well as visual evidence from neighbours, gardeners, cleaners, etc. Trying to claim UK tax residency because you go back to the UK for at least 90 days a year does not always work.

4. A Double-Taxation treaty is merely an agreement between two countries that if you are taxed in one you will not have to pay the same tax again in the other. You have to be resident in at least one country in any one year. The Spanish will quite quickly assume that you are Spanish tax resident if there are any signs of regular/permanent establishment in the country, e.g. buying a property, children at school.

5. If you are claiming to be non-tax resident anywhere then you could misunderstand the rules of the countries that you are living in. It is possible but most countries will deem you to be tax resident even if you spend less than six months of the year in the country. 

6. Some people move to Spain and then decide to try and live under the radar. It is a requirement in Spain to complete a tax return. Even if you are paying tax on pensions in other countries, have assets overseas or income from other sources, the tax law in Spain states that as a tax resident you are liable to taxation on your worldwide income and assets. 

7. UK Individual Savings Account (ISA) and Premium Bonds are not recognised as tax free in Spain and are therefore taxed on income and capital gains. 

8. Watch out for ‘tax-free’ lump sums from pensions. This is now referred to as PCLS (pension commencement lump sums). The UK pensions system allows a 25% lump sum pension payment on retirement which is tax-free if you are a UK tax resident. In Spain that lump sum is taxable and therefore it might be advisable to take it before you change residency. You might also consider moving the pension fund to a QROPS (Qualified Recognised Overseas Pension Scheme). 

9. Even after considering all of this, life in Spain is great! If you take steps now and plan early enough to do things properly it will be less painful than if you are caught out by doing the wrong thing. We often tell clients that for a few hundred euros more, it really is not worth taking the risk and losing sleep at night.

10.If you would like any more information on tax, QROPS, investments, regular savings or general financial planning for expats in Spain, don’t hesitate to call Charles Hutchinson on 952 79 79 23 or 605 903 472 or email charles. hutchinson@spectrum-ifa.com