Spain takes top spot for UK expats but pensioners warned tax issue can 'catch people out'

Spain made it more difficult for British retirees in early 2021, but it’s still a popular place among British expats and retirees. Since March 2021, newly-implemented Spanish rules state pensioners must have an annual salary/income of £21,000 to live there, much lower than what the UK state pension pays out. Nevertheless, hundreds of thousands of Britons live in Spain and this demand is set to rise over the coming years.

Recent developments have opened up Spain to UK residents again as Julio Prieto, a Barrister and Abogado at London-based Del Canto Chambers, explained.

“The UK breathed a sigh of relief last week when the government announced that October 4 would signal the end of the traffic light system on travelling abroad, interest in purchasing Spanish properties has come back on the table as travel restrictions to Spain are lifted,” he said.

“The reopening of borders will give rise to an influx of UK nationals resuming their plans to move or invest in opportunities overseas, incentivised by the pandemic to make dramatic lifestyle changes; those motivated by the possibility of being allowed to work remotely. “

In 2020, Mr Prieto said UK National’s interest in Spanish properties plummeted, caused in part by a combination of Brexit issues and the pandemic.

However, as Britons moved through 2021, interest in Spanish properties valued over €500,000 rose, with Britons accounting for 11 percent of non-Spanish buyers’ interest in this type of property located mainly in the Balearic Islands and Costa del Sol.

© GETTY Spain

Mr Prieto continued: “Interest from British investors in Spain has continued to grow significantly since the Breixt vote, and we expect this to continue as Brits regain their pre-pandemic confidence.

“Spain – a gateway to other European markets – boasts significant legislative and tax-related incentives for foreign investors and is still the number one destination for Brits looking to move or conduct business operations from abroad.

“Recent statistics show that almost half of over-50s who wish to emigrate would choose Spain – a country where one’s residency status and global wealth can be used to maximum advantage.”

While Spain does have a range of benefits for Britons looking to emigrate, David Denton, a tax expert at Quilter International, warned its legal and tax systems “have a knack of catching people out.” In light of this, Mr Denton urged British retirees to take certain action before they move.

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“For those arriving with an employment contract with a Spanish company, some generous tax rules apply, colloquially known as the Beckham Law, as it was allegedly established so that footballer David Beckham would not be unduly disadvantaged when he joined Real Madrid in 2003,” he said.

“But if not, you should be aware that the basic personal allowance for everyone under the age of 65 is €5,550, or €6,700 from age 65, and €8,100 from age 75, with income tax on earned income, rental income and pensions starting at 19 percent, above available allowances, topping out at 47 percent (above €300k). UK pensions (including the state pension) are generally chargeable to tax in Spain and not the UK, and the tax free lump sum available in the UK doesn’t apply.

“This means it could be good advice to draw one’s pensions before arriving in Spain to enjoy this feature. The exception to this is that public sector schemes are normally taxable in the UK, not Spain.”

There are also a range of tax incentives for savings and investment products but Britons need to be careful with anything they hold in the UK.

Mr Denton said: “Of better news is the fact that savings income, dividends, capital gains and profits on international investment bonds reach a max of 23 percent, above €200k. But Spanish residents shouldn’t assume that tax efficient investments maintained in the UK have the same benefits in Spain, in so much as ISAs, National Savings Certificates and Premium Bonds winnings are all taxable in Spain, even if the income, gains or profits are not brought into Spain.”

© EXPRESS State pension

UK state pension rules for UK nationals in the EU, EEA or Switzerland

The UK has left the EU and as such, expats will be affected by the EU Withdrawal Agreement which impacts what they can receive in European countries. If a Briton plans to move abroad, they will need to tell the Government office that deals with their benefits or their UK state pension if they are moving or retiring overseas.

The Government details a person can carry on receiving their UK state pension if they move to live in the EU, EEA or Switzerland and they can still claim their UK state pension from these countries.

Their UK state pension will also be increased each year in the EU in line with the rate paid in the UK. Britons can also count relevant social security contributions made in EU countries to meet the qualifying conditions for a UK state pension.

For the new UK state pension, at least 10 years of National Insurance contributions will be needed to qualify for payments. To receive the full amount of £179.60 per week, at least 35 years will be needed.

UK benefit rules for UK nationals in the EU, EEA or Switzerland

For those who are moving, or thinking of moving, to an EU, EEA country or Switzerland the rules for paying some UK benefits in the EU, EEA or Switzerland changed from January 1 2021.

So long as a person is eligible, the following benefits and payments can be paid in the EU:

  • Bereavement Support Payment and other bereavement benefits
  • Industrial injuries benefits
  • Maternity Allowance
  • Statutory Maternity Pay
  • Statutory Paternity Pay
  • Statutory Sick Pay

Additionally, relevant social security contributions made in an EU country can be used to help you qualify for some UK benefits while a claimant is in the UK, for example:

  • New Style Jobseeker’s Allowance
  • New Style Employment and Support Allowance

For those who were living in Europe by December 31 2020, the EU Withdrawal Agreement rules will be applicable. Full details on this agreement can be found on the Government’s website and impartial guidance can be sought from the likes of Citizens Advice or Money Helper.

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