davethedog

Good morning all, and by way if introduction we have recently retired after spending many years in the UK armed forces and looking at options as we love sailing and living on our boat.

The wife and I are considering taking our boat to Gran Canaria later this year (all going well) and may want to spend more than 183 days in the next calendar year in Spain. We would also in a few years want to leave the Canary Islands and spend a few years in the Med and aware that we may (BREXIT dependant) only be able to spend 90 in 180 days without Spanish residencia, as this should allow us to use Spain for the 90 days we need to spend out of the normal EU, is this correct?

Now I know this means we would become resident for tax purposes but just after a sanity check regarding a few questions we have reference gaining NIE/residencia and also regarding the financial side.

So, here we go!

1. I understand we would need to get an NIE number within 3 months of being there to allow us to be on the foreigners register, is this correct and this is not too difficult as we could get this anyway and then not go ahead with residencia.

2. Before we went for residencia we are hoping to speak to a spanish tax specialist whilst in Gran Canaria and have the following questions if anyone can answer in general terms?
a. We are both in receipt of UK military pensions so we know they are taxed only in the UK, but am I correct in that the amount we get will be used for the relevant tax band for any Spanish tax due?

b. We have a home in the UK we would be letting out, and understand that we would have to pay uK tax on the rental income at 20% and then do we pay any more to the Spanish authorities? I have read about a 60% reduction if it is a long term let, is this correct and how does it work?

c. We have some savings and the house with a total value of about £550k, which we jointly own so would we be stung for any wealth tax?

d. We would not look to sell the home in the UK until we returned eventually.

e. Am assuming when we return to the UK we just renounce our Spanish residencia and go back to being UK residents again and back to "normal"?

f. The wife's mother is now 80 years old and has a property in the UK that we would inherit 50% of (about £250K we would receive) in the event of her death, do we pay death tax in the UK or in Spain? Could we return to the UK and renounce the Spanish residency to avoid any Spanish taxes regarding this (as believe the Spanish rate would be higher and not sure if there is an allowance ref this).

g. The Spanish tax year runs Jan to Dec and I understand that if we got residencia in say November we would then have to pay any Spanish tax for the whole year and not just the rest of the year, is this correct?

h. Can anyone please clarify the requirements for residencia as have read some conflicting reports?

• NIE.
• Address (ours would be a boat in a marina).
• As we are both under 50yo 12 months medical insurance.
• Money each in a bank account for 3 months? This I am unsure of as we both receive pensions for more than 1000euro per month each so is the money in the bank account also required as at present we have most of our money in premium bonds.

i. When we return to the UK after 4 or 5 years we just fall back under the UK rules regarding any capital gains tax on our home, although before we ever thought of selling it we would be living in it for 4 or 5 years anyway as no plans at present.

j. Finally (for now) would this order of events be the right way:

• Arrive in the Canaries.
• Within 3 months get NIE.
• Within a further 3 months apply for residencia?

Apologies for the really long post and lots of questions, and going to try to speak to a tax specialist soonest as if the financial side is too high we would look at other options.

Thanks in advance

DTD

Fred James

Welcome to the forum.

You have got most of the answers to your questions right, but my additional question is do you intend to live on the boat or buy/rent somewhere ashore?
As you intend to keep your boat in Spain you will probably need to register it in Spain and that might involve a fair amount of tax - rather like bringing a UK car to spain.

Your UK crown pensions will be taxed in the UK but will affect the tax rates you pay on any other worldwide income. You will get the usual allowances in Spain so if the net taxable income is low, the effect of that could be minimal.

Retal income will be taxed both in the UK and Spain but you can offset any UK tax paid on the rental income against your Spanish tax due on the UK rental. However as you correctly state you will get a 60% reduction for a long let. I would expect that the UK tax on the UK rental income will be less than the Spanish tax, so no Spanish tax would be due on that income.

Unless you have a lot of other assets, I doubt that you would pay wealth tax as the allowance for a couple can be up to €2m. You would be liable for a small amount of tax on your UK property as it would be regarded as a second home, the same as you would if you stayed in the UK and owned a holiday home in Spain.

IHT may be paid in both countries if you are resident in Spain at the time of the death. There is no way you can avoid it by changing tax residency after the event. You would get an allowance of €23125. The tax rates are on a sliding scale and on an inheritance of £250k could be about €50k, depending on the exchange rate at the time. If the money was left to you and your wife jointly it would reduce the tax by a very large amount as, unlike the UK the tax is paid by the individual beneficiaries and they all get an allownce. In the UK the whole estate is taxed and then divided up.

I see no reason why you cannot use the name of your boat and the address of the marina for your residency application. As for the financial requirement, it does vary from place to place as there is no official published figure but proof of a significant pension and some money in the bank should suffice.

As for the timings, you must apply for residency before the end of the year (unless the Brexit timescale is extended) as it will get much more complicated.

Incidentally, we spent 5 years living on our boat around the Med and did about 12000 miles of cruising - absolutely fabulous! As we never stayed in one place long enough to become tax resident, we continued to pay tax in the UK - its very difficult to become a "fiscal nomad" and anyway, it would'nt help you much as they will always tax your pension in the UK.

davethedog

Hi and thanks for the reply and the boat issue I am content with as we would be living in that and know we would have to pay approx 1000euro matriculation tax but not have to register the boat as Spanish as it would remain UK flagged and UK VAT paid.

Do you have any further details regarding the second home tax?

Have spoken to a Spanish tax person today and awaiting the first email questionnaire from them soon to at least get an idea of what the differences would be.

Thanks
DTD

Fred James

It's 1.1% of 50% of the original purchase price of the property.

Importing a boat is the same as a car which means that if you do it within 60 days of becoming resident, the matriculation tax is waived. Boats and cars are covered by the same law.

davethedog

Thanks for the replies and now awaiting to hear back from a tax specialist as we may as well pay some money to see what we would owe if we do go ahead.

Dtd

Fred James

Very wise, it’s a complex subject. Let me know what they say.

Patrick2976

Just to add that - should you become resident in the Canary Islands a 99.9% reduction for succession and gift tax now applies for children and spouses (group I & II beneficiaries). Each autonomous region is allowed to set their own reductions and the Canary Islands has gone from being one of the most punitive to one of the most lenient. So in effect the liability would be zero. IHT in Spain differs from the UK in that any liability depends upon the residence of the beneficiaries (i.e.Spain) and/or the location of the asset. In the UK it is the deceased's estate that is taxed. So in theory you could have a UK IHT bill on the estate AND a Spanish IHT liability on the part of the beneficiary living in Spain. What's more the dual tax treaty between the two countries does not cover IHT - but there is something called unilateral relief. You can read about it here - https://www.gov.uk/guidance/inherita...axation-relief
For wealth tax there is a €700K allowance per person and a €300K allowance on your main residence (in Spain). Your UK property would not count. There are other ways of mitigating this should you breach the allowances. WT is a temporary tax which is renewed each year. However, given the current circumstances and the vastly increased debt the government will have post Covid - along with the fact that the coalition government is led by the socialist party - I don't see it being cancelled any time soon sadly.

davethedog

Patrick, many thanks and appreciate the response and we are having our situation looked at by a tax specialist here as we will not exceed the wealth tax threshold.

fwl01

Just to clarify-you have to fill in your Spanish Tax return with NET letting income and then 60% is deducted which is a useful tax break but may alter when we are no longer classed as E.U.residents. Then you also declare the income on U.K.self-assessment but can claim back the tax on your Spanish return . You will probably only have the rental income on your u.k. return and have your U.k. Personal allowance(s) to offset which if rental property is in joint names significantly reduces u..k. tax. We have done this for 3 years. We also have a commercial let and there are no reliefs on this, in fact we can't claim for some expenses e.g. travel which HMRC allow!
My main worry is that the 60 % relief on house rentals will not be allowed once we are not classed as E.U. citizens-the relief was not intended to apply to properties outside Spain but Hacienda was forced to treat all E.U. tax payers equally!
Regards,
William E.

davethedog

Many thanks William and can you please elaborate as we have never done self assessment tax returns regarding the 60% etc?

fwl01

Hi Dave,
We use tax-advisor who does our tax return in Spain and can also do u.k. tax returns, The firm is called U.K. Tax-Refund and she is Michelle Hamilton 965 636 038.
I give her a list of letting income and all expenses incurred, including agent fees. She tells me what is and is not deductible and fills the form in online. There is a box that pops-up if you are claiming relief under the double tax agreement and she enters there what I paid the previous year to HMRC and it is deducted from the total tax due. Obviously the 1st year you will not be able to claim it as the tax has to be paid before Hacienda allow a refund..
Sorry-tea is ready so must go but hope this helps.
fwl01

davethedog

Update as heard from the tax specialists in gran Canaria.

Our military pensions will not be taxed and neither will they count towards any taxes we owe due to renting our property out.

We fall under the wealth tax so they said the only thing we may have to pay is mstriculation/import tax on the boat but this can be avoided by declaring it when we go for residencia.

Next question is who do we look at ref medical insurance..

fwl01

Hi Dave,
We are with a Spanish Health Insurance company called Salus, used to be called Perpetuo Socorro, who we are very satisfied with but there are plenty of others especially on the Costas just Google them. Premiums lower than with the big u.k.firms but cover just as good or better! Probably more recommendations on here?
Good Luck

Patrick2976

We use a company called Medi FiatC - I have found them over the years to be very reliable and relatively inexpensive.

Notdunroamin

Be sure to not sign on any padron before you are actually ready to go for residence, it's a declaration of habitual resident and could scupper the tax exemption.