Retiring in Spain: 3 tips for British citizens

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, they are subject to change and we are not responsible for any errors or omissions.

Spain is the most popular destination for UK expats looking to retire, attracting over 1,000 retirees every month. As financial advisers here in Murcia, Costa Blanca and Almeria we fully understand why! The weather is warmer, the lifestyle is relaxed and the cost of living is around 21% lower. However, before rushing abroad, it is important to have a robust financial plan in place.

In this guide, our  financial advisers (hailing from the UK!) explain some of the key things to consider when retiring to Spain as a British expat in 2023. We hope this content is helpful. If you want to discuss your financial plan with us, please get in touch to arrange a no-obligation financial consultation, at our expense:

+34 966 460 407


#1 Consider how much you need

Any British person approaching retirement needs to ask: “How much much do I need to retire?” and “Am I on track to achieve this?” Answering the first question is rarely straightforward. For expats, it can be even more so (e.g. due to currency fluctuations).

A good starting point is to take your pre-retirement salary and subtract it by a third. For instance, if you earn £40,000 right now, then you might need £26,400 in retirement. Then multiply this figure by 30 to start estimating a desired pension pot size. In this example, the figure would be around £792,000.

However, the figure could be much higher or lower depending on your needs and goals. It also does not account for your State Pension, future inflation (in the UK or Spain) and differences in living costs and currency valuations. This is why it really helps to work through these questions with a financial adviser who has experience with expats retiring in Spain.


#2 Understand your tax obligations

In our experience, British expats often make big assumptions about tax laws – in the UK and Spain – which can cost them later. A good example is inheritance tax (IHT). Some believe that, by moving abroad, you can avoid UK IHT when you die. However, this is usually not the case.

Instead, an expat’s liability to IHT in the UK depends heavily on their “domicile” status. Most expats will still be considered “domicile” in the UK, despite living in Spain even for a long time. This means that, when they die, their worldwide assets (including those in Spain) will be subject to IHT in the UK.

Some expats in Murcia and other areas may choose to start cutting ties with the UK to adopt a “domicile of choice” in Spain. For IHT purposes, this process can take four years or more. However, HMRC will not rule on your domicile status until you die. 

So, to be confident that the ruling will fall in your favour in the future, consider seeking professional advice about domicile determination. Do not make any assumptions as they may prove incorrect and could cost your loved ones later.

More immediately, UK expats retiring in Spain may need to consider their tax plan for income (e.g. from pensions), investments and other assets. 

For instance, British people retiring in the UK after age 55 are generally entitled to withdraw a 25% tax-free pension lump sum. However, if you live in Spain when you try to take the money, it will not be tax-free (unless you have a UK government employee pension). 

Therefore, many British people may be better off taking their 25% tax-free lump sum before relocating to Spain. Similarly, if you want to sell your family home or a business in the UK, then doing so after moving abroad could lead to tax charges.


#3 Have an estate plan ready

For a British person resident in the UK, the tax system is complicated enough when it comes to inheritance tax (IHT) and administering a deceased person’s estate. In the case of a UK expat in Spain, however, the complexities can be even greater – e.g. due to different tax rules and assets in different countries.

Spain has 13 bands of IHT and then 4 classes of beneficiaries with differing allowances. Then, also taking into account existing wealth leads to a further 16 different multiplication factors. Add the complexity of different regions having different rates and allowances, and it is very complicated.

As a general rule if the assets are situated outside of Spain and the beneficiaries are also not resident in Spain then Spanish IHT will not apply. If the beneficiaries or assets are in Spain then Spanish tax will be applied.

The IHT systems in the UK and Spain are quite different. It is important to grasp this ahead of time. For instance, if you live in the UK, then your estate can pass to your surviving spouse or civil partner without tax. In Spanish law, however, there is no concept of an individual’s “estate”. Instead, all beneficiaries must pay IHT in some form.

In many cases, crafting a robust Will can help ensure that your wishes about your estate are respected (in line with UK and Spanish law). For instance, the two countries recognise children in very different ways when it comes to IHT. If you want your estate to be administered according to UK rules on this matter, then a suitable clause will be needed in your will.


Conclusion & invitation

If you are interested in discussing your own financial plan or investment strategy with us, please get in touch to arrange a no-commitment financial consultation at our expense:

+34 966 460 407


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