Yahoo News How to retire to Spain in 2022: the lowdown on tax, property – and why you need a £357k pension
Spain is the dream retirement destination for many and more than 100,000 British pensioners have already made the move to the sun-kissed country.
Relocating to a warmer climate may be enticing but it is crucial to plan ahead. If rushed, it can kick up surprise tax bills and pension headaches. Brexit has put a spanner in the works making it more difficult and more costly to move but it is not impossible.
Here is everything you need to know about relocating to Spain, from taxes and visas to pensions and property prices.
How much money you will need to retire to Spain
As of 2021, Spain requires foreign nationals to have an income or available savings of €27,115 (£23,258) for each year they live in the country. Anyone moving there must have enough resources in their savings accounts, private pensions, the state pension or to be able to prove they will receive the money in dividends or rental income.
Applicants only need to have enough money to satisfy however many years they plan on living in Spain. For example, someone wanting to live in Spain for five years would need around €135,600.
The full state pension is currently worth £9,627.80 per year, which means pensioners would need around another £14,000.
An additional €6,778 is required each year for every extra family member. That means a couple would need an income of €33,894 (£29,072). Assuming both partners have the full state pension, they would only need an extra £11,000 per year between them as a top up.
A 65-year-old would need a pension pot worth £357,000 to be able to sustain that level of income until age 90, according to calculations by Blevins Franks, a financial adviser. This assumes they receive the full state pension from age 68 and investment returns of 5pc.
Likewise, a couple would need £335,000 between them if they both receive the full state pension.
The Government confirmed in January anyone moving to the EU or Switzerland after Brexit can carry on receiving their British state pension, which will continue to be increased each year in line with the rate paid in the UK.
Getting the right to move: sort out your visa
Pensioners are categorised as “economically inactive”, which means they have extra requirements compared to working age people.
There are new, stricter rules since Brexit. There are two types of visas to earn the right to live in Spain: the “non-lucrative visa” and the “Spanish golden visa”.
The non-lucrative visa requires proof of your financial resources to pass the income check and then applies for one year. On renewal, this visa lasts for two further years.
The visa costs £3,500 for a couple, Blevins Franks estimated. This will be split between an application fee of £516, with added costs for a medical check, criminal check, legal stamps and document translations.
Golden visas are more expensive but allow Britons to gain flexible residency rights in a lot of EU countries in exchange for investing a substantial amount in local property or investing in the economy. Applications cost €5,000-€6,000 every time.
To meet the real estate investment requirements, one must purchase a single or multiple properties worth €500,000.
Other investment options for the golden visa include buying at least €2m in Spanish public bonds, buying €1m worth of shares in a Spanish company or Spanish venture capital funds, or having €1m in deposits with a Spanish bank.
It is crucial to get all the information right when making an application. Jason Porter, of Blevins Franks said: “Get the residency application wrong and in most cases it is void and the application fee is lost. Not only will you have to start the process again from scratch, but you will have to come up with more cash for a new application.”
An insight into Spanish tax rules
Anyone planning their move must consider their financial and tax situation before they relocate, or risk facing hefty bills.
British tax-efficient investments such as Isas and venture capital trusts do not have the same tax treatments abroad. In Spain, any interest, dividends or capital gains arising within these investments will be taxable.
When it comes to pensions, income drawn from a pot is taxable where the person lives, so in Spain rather than in the UK. The only exception is Government employee pensions, which will only be taxable in the UK.
Importantly, the 25pc tax-free pension cash rule no longer applies, Mr Porter said. Even the 25pc is taxable because Spain does not have a non-taxable element of a pension fund. Those planning ahead may be better off taking the tax-free cash prior to relocating.
Anyone planning to sell their family home in Britain after making the move could also be stung by charges. Mr Porter said: “Most countries have some form of main home tax relief so in the normal course of events, no capital gains tax arises on sale, but the UK’s rules are significantly different than those in Spain. While the sale may not lead to a tax liability in the UK, it may in Spain.”
Similarly, anyone planning to delay selling a British business until they have left to avoid UK capital gains tax, are likely to find it is taxable in Spain, he added.
Spain, like other countries in Europe, has taxes that do not exist in Britain, such as an exit tax and a wealth tax. This means expats must fill in additional tax return forms. Any assets around the world must be declared for the wealth tax where they exceed €2m.
Overseas assets exceeding €50,000 must also be declared and failure to do so could lead to severe penalties.
Inheritance and wealth taxes vary from region to region in Spain. Some areas like Madrid have 100pc relief on inheritance and wealth tax while other regions can charge up to 34pc in death duties.
Buying property in Spain
Spanish property is much cheaper than the value of British house on average.
The national average square meter costs €1,625 (£1,396) in Spain, compared to £2,863 in Britain, according to Knight Frank, an estate agent. In the first three months of 2021, the Murcia region in Southeastern Spain had the cheapest property value, at €981 per square metre.
Owning property worth more than €500,000 in Spain is one of the criterias for the “golden visa”.
Buying real estate in Spain attracts certain taxes, stamp duty and fees. These costs amount to 11pc of the property purchase price, mainly due to VAT, the adviser estimated. In addition there are conveyancing fees, typically around 1pc of the property purchase price.
Getting health cover or insurance
Britons must prove they will not be an “undue burden” on the Spanish state, which requires them to have comprehensive health insurance.
Anyone applying for a visa must hold a private healthcare insurance policy that provides full coverage of at least €30,000 for the full period of the residency permit.
Reader Service: Considering moving to Spain after Brexit? Discover how to find the best currency exchange rates to transfer money to and from Spain.
This is part of a series looking at the rules and tax implications of retiring abroad post-Brexit, including to Spain, France, Portugal, Canada and Australia.
This article is kept updated with the latest advice.
