Christmas is often a time for reflection. How was the past year? What will the new one be like? For some, it’s a focus on retirement planning and a move abroad.
Since Brexit, UK emigrees to EU States are now considered 3rd country nationals. In other words, in the same way as anyone who doesn’t possess an EU passport. When the UK was an EU member, the process was relatively easy. Although conditions vary from country to country, the basic principle of going through a visa application is similar throughout the EU.
Spain is still the most popular retirement destination for UK retirees; who can blame people wanting to escape the long, cold and wet winters in Northern Europe. Many folks spent most of the cold season in Spain pre-Brexit, but the new residency rules limit stays to 90 days in every 180 on a rolling basis.
The residency process has become much more complicated; however, realising the dream of living permanently in a warmer climate is still attainable with the right plan in place. Andalucia in the Costa del Sol boasts 320 days of sunshine a year, some of the best food and wine found anywhere in Europe and a lower cost of living.
Here’s my checklist for turning that dream into reality.
Residence requirements
There are several ways to obtain residence in Spain. For those still employed, either a work visa or digital nomad card will be needed. Whilst our company don’t undertake this work on behalf of our clients, we have some reputable contacts who can do this for you. DIY is also possible, but it is best left to professionals unless you are sufficiently confident in your knowledge of Spanish bureaucracy.
Retirees can apply for a ‘Non-Lucrative visa’ (NLV) or Golden visa. There are many differences between these options; however, the basic premise of not being a burden on the State applies to both. It will be important to prove that you have enough income to sustain yourselves, have somewhere to live and have health insurance.
For those going down the NLV route, the first step will be to contact one of the many relocation companies who will help start the process. A visit to the nearest Spanish consulate in the UK may be required.
You must apply for a National identity card and change your driver’s license soon after arrival.
The main takeaway here is to get started as soon as possible. Your residency application will take many weeks or months; the sooner you start, the sooner you finish.
Retirement planning: the financials
It’s important to understand that your financial situation will also change. The Spanish tax system is very different from the UK, and investment and pension products aren’t taxed in the same way. For example, ISAs are highly tax efficient in the UK but taxable in Spain under the worldwide system. The Spanish Compliant Investment Bond is an ideal way to retain the tax benefits of ISAs and other investments and deposits. Tax-free cash payments from UK pensions aren’t tax-free in Spain. Some UK pensions aren’t even treated as pensions in Spain, so pre-emigration retirement planning advice is essential.
So, if you intend to take your Pension Commencement Lump Sum out of your UK pension, do it before becoming a fully Spanish tax resident.
Similarly, if you intend to sell your UK property and buy one in Spain, do it before you become a Spanish tax resident, as the sale will attract Capital Gains Tax if you leave it until you become resident.
Pension transfers
Another retirement planning issue concerns transfers to either QROPS or SIPPs. The sooner you seek advice on this subject, the better. A QROPS may be a much more convenient and appropriate home for your pension. Withdrawals are paid gross of withholding tax, investment and currency options could be much wider and underlying investment products more sophisticated.
Some UK insurance companies have made it difficult for non-UK residents to continue receiving full services. Many don’t allow fund switches and can only provide valuations over the phone. Annuity payments can be disallowed in certain circumstances, and UK advisers are frequently not licensed to provide services. A Catch-22 situation whereby UK advisers cannot provide services to EU-based clients and insurance companies are reluctant to deal with EU-based advisers could arise, leaving customers in limbo unless a pragmatic solution can be found.
Thankfully, solutions do exist, as common sense usually prevails. It’s important to use a suitably qualified and regulated EU adviser who can help square the circle and enable you to benefit from the pension freedoms you signed up for.
If you would like to learn more about retirement planning for a move abroad, please get in touch with us on the form below.