DOES THIS SOUND FAMILIAR?
YOU OWN PROPERTY IN SPAIN OR PORTUGAL
YOU SPEND MORE THAN 183 DAYS A YEAR IN YOUR ‘SECOND COUNTRY’ YOU THINK YOU ARE UNDER THE RADAR OF LOCAL TAX AUTHORITIES YOU WANT TO TRANSFER YOUR PENSION FUND TO A QROPS
YOU ARE DRAWING INCOME FROM YOUR UK PENSION AND PAYING TAX AT A HIGH RATE ON THIS INCOME
YOU ARE UNSURE ABOUT YOUR IHT POSITION BUT DON’T THINK IT’S A BIG PROBLEM
YOU WANT TO REDUCE YOUR OVERALL TAX LIABILITY IN A LEGAL WAY WITHOUT LOSING SLEEP AT NIGHT BECAUSE YOU ARE A TAX NOMAD.
THIS IS A SCENARIO WE COME ACROSS ON A DAILY BASIS.
Lets deal with the easy one first, if you spend more than 183 days in a year in Spain or Portugal you will be deemed to be a resident and need to register with the authorities and can be taxed on your worldwide income (double taxation agreements exist with the UK). Whereas in the past local tax authorities may have been slow in chasing expatriates they are now desperate to replenish their coffers and therefore are intent on raising as much revenue as they can. In Spain, for example, the tax office gathers reports from each of the electricity companies regarding usage to assist in establishing patterns of residency.
You’ve probably heard about QROPS and some of the advantages of transferring your UK pension overseas, however until you have established residency or at least signalled the intention to do so within the next twelve months then you are unable to take advantage of moving your pension away from the UK.
This means that you are exposing your beneficiaries to a potential tax charge of 55% if you are drawing an income from your UK fund. This charge will apply on your death before your beneficiaries can receive a lump sum from the remainder of your fund. So if you have a pension fund of £1 million that’s a tax charge of £550,000. So much for passing on your hard earned savings to your family.
If you are drawing income from your pension you will be paying tax at your highest marginal rate on this income in the UK which could be 40% or possibly 50% if you still have other earnings. You probably haven’t been told that if you draw this income in Spain or Portugal you can benefit from particularly generous rules when the contributions into your fund were previously made from your own resources. In Spain, only a small proportion of pension income drawn from a QROPS or QNUPS is taxed and then at capital gains rate giving an effective rate of tax ranging from 2.50% to just over 3% depending on the size of the withdrawal.
You know you should do something about your Inheritance Tax position but of course you haven’t declared your real residential status and therefore you cannot benefit from tax planning opportunities available to Spanish or Portuguese residents. You know that your UK estate will suffer IHT and your beneficiaries will have to pay local taxes on your death but you can’t do anything about it. You have heard that a QNUPS retirement plan might immediately remove investable assets from your UK IHT liability and provide you with an income stream taxed at the same favourable rate as QROPS but you know that you cannot proceed with this type of arrangement unless you have definitive plans to formally exit the UK.
So isn’t it about time you stopped burying your head in the sand and took some sound financial advice? Fiduciary Wealth are cross border specialists specialising in tax led solutions to clients switching their residency status from the UK to the Iberian Peninsula. Not only do we provide the structures to legitimately minimise the tax that you pay, we combine this with our proactive asset management capability so that you know that your investments are in safe hands being directly managed according to your specific requirements rather than being farmed out to a third party and treated with a one size fits all approach.
With offices in Central London, on the Costa del Sol, in Gibraltar and on the Algarve, our fully trained advisers are on hand to help you benefit from putting your financial affairs in order.
Can you afford to carry on like this or are you going to give up being a nomad and finally be able to sleep peacefully at night knowing your financial affairs are all in order?