So, scary headlines aside, is there really anything to be concerned about and are you going to be clobbered with a 25% tax bill?
Well, in reality, for most of us expats living in Spain the simple answer is no. As always, the devil is in the detail, not in the headlines – even from such an august publication as the FT.
Checking the legislation gives a completely different and much less dramatic story (shock headlines and horror stories sell papers) for us EU expats living in Spain and the reality is that the Overseas Transfer Charge (OTC) of 25% does not apply under the following circumstances:
- If the transfer request was before 8/3/17.
Or if any one of the following five conditions apply:
- The Member (you) is tax resident in the country in which the QROPS is established –
- The Member is tax resident in the European Economic Area and the QROPS is established in the European Economic Area.
- The QROPS is an Occupational Scheme and the member is an employee of the sponsoring employer under the scheme.
- The QROPS is a Public-Sector scheme and the member is an employee of a sponsoring employer under the scheme.
- The QROPS is set up by an International Organisation and the member is an employee of a sponsoring employer under the scheme.
Condition 2 is highlighted as this probably applies to most readers of The Olive Press, and the majority of my clients.
For example, when UK (or other European Economic Area) citizens who have moved to Spain (also EEA) discuss moving a pension, the most likely jurisdictions for a transfer to QROPS are Malta or Gibraltar (both EEA). Of course, Gibraltar as a Crown Dependency of the UK may be out of the frame when the UK exits the EU and I will discuss Malta in a future article.
What does this mean to a Spanish Tax resident who originally came from a European Economic Area country like the UK? In simple terms, point 2 above applies. “The member is a tax resident in the European Economic Area and the new pension (QROPS) is established in the European Economic Area”.
The result for most of us flies in the face of the headlines above which should now read:
“No Overseas Tax Charge to pay for the majority of Expats in Spain”
But maybe that would not sell as many papers!
This communication is for informational purposes only and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.
A SIPP transfer may offer many benefits, including greater investment flexibility and exemption from capital gains and income tax; however, a SIPP is not suitable for every retirement investor and independent expat financial planning advice should always be sought before committing to a SIPP pension transfer.
One of the best pieces of semi-financial advice I ever received was about buying clothes: buy good quality (obviously) and then have the garment altered to fit me specifically; sound financial and sartorial sense. Of course, this means going a little further than one might normally when buying a new outfit, but it’s a little extra that I think is more than justified in the end. Ready-to-wear clothes are great without doubt, but having something that fits you perfectly gives a continued feeling of satisfaction with every wear, it’s so worth it. There are parallels to be made in my professional life as well; it’s such a pleasure to be able to offer clients advice and products that are tailormade to their requirements and fit their circumstances perfectly.