Tips on expat tax liabilities in Spain

Moving to Spain can give serious tax-efficient opportunities, as long as you’re clued in.

Spain’s obvious attractions are there for all to see, and are a big part of the decision to relocate either as an entrepreneur or for an existing position within a Spanish company. However, tax structures in the country can be confusing and the lack of speed at which bureaucracy functions can be frustrating. However, there are real tax advantages in the move as long as you are well-prepared.

Firstly, you’ll need to establish the exact date you became tax resident and liable to Spanish tax rules and regulations. Remember that Spanish tax will be due on your worldwide income, wealth and financial gains, and don’t forget to factor in Spanish gift and succession laws. Importantly, be wary of rules involving UK tax residency, as they may mean you must pay tax in both countries.

Spanish income tax rates for general income range between 19 and 47.5 per cent, with tax on savings income calculated in three phases at 19, 21 or 23 per cent. If your worldwide assets add up to over €1 million, a wealth tax kicks in, with the chance that Spanish-compliant investment structures will reduce your bill rated at somewhere between few and none. Taking advice is the best way forward.

Don’t ever assume the Spanish tax system is in any way reminiscent of the British version. Expensive mistakes can result from this assumption, with your investments needing to be reviewed to reflect your new situation. For example, ISAs are useless in Spain, and investments in general need to be diversified and properly structured with your new country in mind.

Keeping your savings in sterling means you’ll be vulnerable to fluctuations in the exchange rate. Once you’re living in Spain, it’s euroland from start to finish and all your expenses will be in that currency. Seeing the euro as your base currency and allocating investments using it is the only way to avoid losing out due to a declining pound. Diversifying by holding investments in several different currencies is also an idea.

If you’re uncertain whether to sell your UK home or are considering the purchase of Spanish real estate, it’s best to keep in mind either strategy’s effect on your tax liability as well as factoring in the date on which you cease being UK resident. Expanded options for pension access require examination in the light of Spanish tax rules as to what best suits your unique situation. Any professional advice you receive should be given in writing by an experienced, qualified adviser.

Tags: Spanish income tax laws, relocating to Spain, fluctuations in the sterling exchange rate, Spanish income tax rates, expat taxpayers in Spain, tax on income from savings, euros as base currency,
diversifying investments