There is a lot to consider when moving abroad to any country, and Spain is no exception. As many expats will tell you, it’s important to stay organised to ensure the smoothest possible transition. In order to breakdown what you need to do before moving to Spain, it can be useful to consider the actions in three different steps: Check, Change, Action. Between these you can cover what needs to be checked before you leave, what may need to be changed before you move and what needs to be actioned once you get to Spain.
What do you need check?
If you live in Euroland and you spend in Euroland, it makes sense to have most of your assets denominated in Euro. Having all your assets and income in a different currency than the one you spend in adds another layer of risk, namely currency risk. You may remember how much the exchange rate changed in 2007 – 2008 when one pound went from around 1.52 euros to nearly parity. Consequently some foreign residents relying on pension income in pounds to pay for their mortgage in Euro suddenly encountered themselves in a very different financial picture.
Perhaps one of the most obvious – but most important – part of your moving process, is ensuring you convert your GBP into the correct currency at the correct time. Exchange rates can be incredibly damaging if you choose to convert at the wrong time, so it is important to keep an eye on the present and the past rates to make sure you’re not losing out.
Governments worldwide give tax benefits to certain type of investment structures to encourage certain social behaviour. Most countries will give you tax relief when you put money aside in a pension to motivate you to save so that you don’t solely rely on State Pension in retirement. Equally other types of investment structures and savings plans benefit from special tax treatments to also encourage you to save. However, what is tax efficient in one country is often not tax efficient in another, as each jurisdiction has its own tax system and these can usually not be mixed. A good example are ISAs, which are tax free in the UK but taxed in Spain. Restructuring these assets so that they comply with the Spanish tax system and ideally further benefit from tax efficiency should therefore be high on your to do list when you are in the process of moving.
If you move to Spain on a permanent basis, you normally become a Spanish tax resident if you spend more than 183 days in any calendar year here. This may result in unpleasant pitfalls if you don’t plan ahead. A common example of this is selling your UK family home before moving to Spain; often, clients will sell their home, which was their main residence in the UK, in February after which they move to Spain in March. Since they spent more than 183 days that year in Spain they are deemed a Spanish tax resident for the whole year. This means their UK home can therefore not be considered their main residency and Spanish Capital Gains Tax may apply on surplus value of this property. Planning ahead and keeping an eye on when to sell and when to move can make a huge difference.
After Brexit we have found that some UK Pension Providers have made some changes in the way members of their pension schemes can take benefits. Some will not allow non-UK resident members to access their pension under the Flexible Access Drawdown regime whilst others will require you to take local advice when accessing their pensions. Therefore, it is important to check with your pension scheme provider and / or with your Financial Adviser what impact a change of residency may have on taking benefits from your pension.
What do you need to change?
Due to the nature of exchange rates, it can be a good idea to diversify your currency into both pounds and euros, so that if the exchange rate of one plummets, not all of your savings are affected. We would recommend the use of a foreign exchange company rather than your high-street bank as their bid-offer spread tends to be much narrower.
New charges applied by banks
When moving abroad, you will inevitably incur bank charges as a result of moving money
from one country to another. It is a good idea to speak to your bank to see what kind of charges you will be paying, and whether using their services is economically viable – charges vary depending on the bank.
When moving to Spain we suggest you take off your UK glasses and look at your overall financial situation through Spanish glasses. Making use of the applicable tax laws, its allowances and tax efficient structures can save you a lot of money. People often automatically assume they will be worse off; this does not need to be the case. However, with insufficient planning ahead this can happen.
Tax also differs depending on your region in Spain, and the different taxes and variations can quickly become confusing. Therefore, we recommend seeking an adviser with local knowledge to help you with this to avoid getting caught out.
From the age of 55, 25% of your pension can be taken tax free as a Pension Commencement Lump Sum (PCLS), whilst the other 75% remains invested and subject to income tax when taken.
However, the PCLS is not tax free when taken as a Spanish resident so it is important to bear that in mind when moving – you may consider taking this 25% prior to your move.
What do you need to action?
It is important to ensure you are selective when choosing a financial adviser as it is an important decision and a considerable commitment. Choose an adviser who is fully regulated, has personal indemnity insurance, and also has good knowledge of local regulation and taxes.
As is apparent from the information above, the things you need to consider before and after you have moved to Spain can become somewhat overwhelming on top of all the other practicalities you need to consider. Having an experienced financial adviser with the necessary local expertise can help reduce stress and give you peace of mind concerning your financial arrangements. Click the link below to arrange a no-obligation consultation with one of our advisers.