Warning! Professional, expert advice is critical before becoming resident in Spain!
I recently had a request for an urgent meeting from a new client as he’d been told by his Spanish Lawyer that he had a tax bill of €70,000 even though his small business had made a €50,000 loss due to capital expenditures in his first year of trading!
Early last year he turned 55, sold his home in the U.K. and took cash and a small income from his Drawdown Pension in order to ‘live the dream’ and set up a business in Spain. His U.K. financial adviser asked him to sign a waiver declaring that he was acting without advice, as his U.K. adviser was not licensed to give International advice.
Spain does not allow split year treatment for tax status. You are considered tax resident, if you are resident in the country for more than 183 days during the year (January to December) or if your major sources of income or economic activity occur in the country.
Spain does not recognize ‘Tax Free’ Lump Sums taken from U.K. Pensions, so they are fully taxable as General Income in Spain. This created a general income tax bill in Spain of approximately €44,000 tax on the £100,000 cash that would have been tax free in the U.K. (General Income in Spain is taxed at rates of up to 48%)
The UK/Spain Double Tax Treaty dictates that any gains realised from the disposal of UK properties attracts Spanish capital gains tax at rates of up to 23%. This is true regardless of whether the property was your main residence.
It is worth bearing in mind that he will also be liable for UK capital gains tax for gains accrued after 6 April 2015, even though he is resident in Spain.
You are likely to be exempt from capital gains tax on the proceeds from a sale of your main Spanish residence provided you are over 65 and have lived in the property for at least three years. Similarly, you will be exempt if you are under 65 and reinvest the entire sum in a new residence. This client was 55 and had moved in to a rented property in Spain, so there was no reinvestment. Tax in Spain approximately €26,000 on his £100,000 capital gain in the U.K. (Capital gains in Spain is taxed at rates of 19% to 23%)
Unless you have reasons for owning UK property while residing in Spain, it may be worth consulting your adviser about the potential benefits of alternative investments.
The saddest part about this story is that the tax bill could have been reduced to absolutely zero with careful International Financial Planning before he became resident in Spain, combined with delaying his residence in Spain and business start up by less than a year.
In today’s financial climate it is essential you do everything you can to make sure your money is safe and secure and what you want to transpire in the future has the best chance of happening.
The local Blacktower office address is: 120 Avenida Dr. Artero Guirao 2C. San Pedro Del Pinatar, 30740, Murcia, Spain. Our office suite is easy to find on the main N332 through road of San Pedro del Pinatar with easy parking.
If you want more information or wish to make an appointment to discuss your own situation then call 657684094 or email keith.littlewood@blacktowerfm.com
Tax Rates taken from Blacktower Group – Tax in Spain brochure available on request. The above information was correct at the time of preparation and does not constitute investment advice and you should seek advice from a professional adviser before embarking on any financial planning activity.
Blacktower Financial Management (International) Limited is licensed by the Gibraltar Financial Services Commission. Licence 00805B. Blacktower Financial Management Limited is authorised and regulated by the Financial Conduct Authority in the UK.
