There is a lot of uncertainty surrounding Spanish residency requirements for British expats in Spain. With only weeks to go until the so-called “do or die” Brexit promised by Prime Minister Boris Johnson, the question of Spanish residency is still as clear as mud.
There are actions we can take to protect ourselves from a negative outcome. Theoretically, expats who do not hold some form of legal residency in Spain when the UK leaves the EU will be treated the same as other non-EU citizens. The consequences of this are significant. In the first instance, the rules regarding how long people can spend in Spain are about to change.
Changes in Spanish residency requirements
Currently, non-residents can live in Spain for up to 182 days per year and remain UK tax resident. In the future, this will be restricted to 90 days in any 6-month period. The 90-day period is considered sufficient for anyone taking a holiday.
Under the new rules, non-residents who spend 1 month in Spain during the first 6 months of the year, will not be able to carry forward the unused part of the 182-day maximum period to the second half of the year. This would limit the amount of time that they can spend in Spain to 4 months of the year without a residency permit.
Access to health care will almost certainly change. At present, UK expats can benefit from the European Health Insurance Card (EHIC) system whereby bilateral agreements are in place between the UK and Spain, giving full access to health care for British people in Spain and vice versa. Post-Brexit, UK nationals who visit Spain for extended periods would be well advised to purchase private health insurance in order to take care of their medical needs should they fall ill. It is possible that a new bilateral agreement can be created, but nothing is certain.
The EHIC issue will pose more of a problem for people who are used to living in Spain for a period longer than can be accommodated by the 90-day rule. Those who live in Spain for lengthy periods, and have not fulfilled Spanish residency requirements, will also be exposed.
A grace period to meet Spanish regulatory requirements
It’s likely that a period of grace will be applied to all UK residents, irrespective of their current position. Anyone who is registered will have a relatively simple process to complete in order to remain fully legal. Essentially, these people need to apply for either permanent Spanish residency if they’ve been here for longer than 5 years, or apply to change their temporary status when their initial 5 year period has expired.
Those who have been living in Spain for close to, or even more than, 183 days a year need to think seriously about Spanish residency requirements going forward. Things are not going to be the same post-Brexit; the consequences of contravening tax-residence laws can be penal.
The tax authorities appear to be clamping down on those who, whether by willful or innocent intent, have not paid sufficient attention to Spanish residency requirements. There are incidents of people being presented with tax bills that include considerable fines.
Available tax planning opportunities
Becoming a Spanish tax resident might not be as unattractive as previously assumed. People who have retired in Spain on their investment income are likely to find themselves in a lower tax environment than the UK. Investing in a Spanish Compliant Investment Bond is a highly tax-efficient way of providing income in a structure which is also free of Capital Gains Tax.
By the same token, pensions are taxed differently and can be a more tax-efficient income source in Spain than the UK. It should be noted that inheritance tax in the region of Andalucia has also witnessed a massive overhaul. Under current legislation, there is only be a 1% levy on estates worth in excess of €1m!
As always, one cannot use ignorance of the law as a defence. It is therefore up to the individual to make sure that their affairs are in order and their Spanish residency position is clear.
If you would like more information on Spanish residency requirements and its impact on your tax position, please fill out the form below.