Moving to Spain, or any other country for that matter, can seriously damage your wealth if you don’t prepare properly and take cross border tax advice from experts who understand the tax rules in the country you are leaving as well as here in Spain and can advise you properly regarding your pensions and investments.
The first thing you have to decide is what your residential status is going to be? Are you moving permanently or do you intend to be a swallow retaining your residential status in the UK but flying in to take advantage of warmer weather? Notice we have not included a category for “financial nomad” the one who thinks he or she can come and go as they please. There are strict rules that determine whether you are resident or not in Spain which broadly follow those applied in many other jurisdictions. Spend more than 183 days in Spain you are deemed to be resident and therefore tax resident.
Of course we have all met the expat in the bar or at the golf club who tells you he has lived here for thirty years and has never completed a tax return or told the authorities. Whilst he continues to duck and dive and misses out on some of the benefits of being resident he forgets to tell you that he lies awake at night wondering if Hacienda are checking out his details and liaising with their counterparts at HMRC. He tells you he keeps his money offshore and it is out of sight of the tax office forgetting that we have entered a new era of automatic exchange of information brought about by the introduction of FATCA which along with the signing of many inter governmental agreements has consigned the old ideas of secrecy and tax avoidance to history.
You may of course find that you remain a UK tax resident because of the new residency rules that now apply in the UK. Based on a number of determining factors you can sometimes remain a UK tax resident despite the length of time you spend in Spain and in some cases in a 50/50 situation a tie break test will determine where you are resident for tax purposes.
Beginning to sound complicated? Didn’t we say there was a need for proper pensions and investments advice and we haven’t even started talking about financial planning yet!
One major issue that you will have to come to terms with is domicile which is a completely different subject than residency. Whilst residency is clear cut and determined by a finite set of rules, domicile is shrouded in mystery. The reason being is that domicile ultimately determines what taxes you will pay on your wealth when you pass on. Safe to assume that at outset if you were born in the UK then you will be domiciled in the UK until you have spent a considerable time away and broken all your ties with your home country. Holding onto property or other assets in the UK can have serious repercussions when it comes to trying to shrug off your link to the UK.
In parts two and three we will look at some of the finer points.
Do you want expert cross border advice? Telephone 900 102 374 for an initial consultation with one of our certified financial planners or email firstname.lastname@example.org.