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What would my financial position be if I retire in Spain?

Tax Law

Antonio Flores Vila

2nd of May 2002

Q. I would like to retire to Spain, but I need to be sure of my financial position regarding taxes as a spanish resident. I have some with-profit insurance bonds (value approx 150,000 pounds) with UK companies which I always intended to use for income purposes. I also have a private pension of 5000 pounds. I intend to purchase a property of around 100,000 pounds and would expect to have around 150,000 pounds other assets to live on. My first question is about the with-profit bonds: the annual income (around 7,000 pounds)is considered 'basic rate tax paid' in the UK, but would I be taxed again in Spain (there is no way of claiming the tax back in the UK as it is levied against the general fund) and would the amount of the bonds be added to any wealth tax total? I am single and have worked out that I will be around 2,000 pounds worse off in Spain aginst the UK (income plus wealth tax). I can not believe that I would be paying wealth tax! This tax situation would appear to get worse when I am 65 (I am 57 now) and get a UK pension as additional income. I can not afford to pay extra tax, so would be grateful if you can tell me if there are legal ways to make this so?

Isle Of Man (UK)

    1. Please note that if you become a Spanish fiscal resident, you will be taxed on your world wide profits. In your email, you mention that the tax paid in the UK is not deductible because the tax is levied against the general fund. According to the UK/Spain Double Tax Treaty any tax that you have paid in the UK in reference to this sort of income is deductible against your Spanish taxes. The issue here would be to obtain, if possible, a certificate from the Inland Revenue, stating what was the percentage of taxes paid. However, if you have paid your UK taxes and there is no way that you can prove that you have done it, I suggest that you do not declare the insurance bonds and do not pay taxes again in Spain, it goes against the spirit of the UK/Spain Double Tax Treaty.

    2. Once you become a Spanish resident, you should complete a tax form in Spain, notifyng the UK tax authorities to repay any taxes that have been paid on your behalf.

    3. Wealth tax is a tax based on your world wide assets as of 31 December of every year. Therefore the insurance bonds will be added to the tax calculation. However, the first 164.000 Euro, are taxed at only 0.2% and In addition to the exemption applicable to all assets of 108.182,18 Euro, a new additional exemption applies whereby your home is also exempt up to a maximum value of 150.253,03 Euro. Therefore, as an example, if the taxable value of your home is less than 150.253,03 Euro and your other assets are valued at less than 108.182,18, you will not be required to file a Wealth Tax declaration.

    4. I do not know how you have calculated that you are going to be 2.000 worst off by moving to Spain or that you can not afford to pay any extra tax, once you receive your pension payments.

      Should you require any further information, please do not hesitate to contact us.

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