Siftersam

In the UK and assuming I choose not to take the 25% tax free lump sum from my pot and opt for a flexi-access drawdown my understanding is that for each withdrawal 25% will be tax free and the rest is taxable. I am considering retirement in Spain and read that in Spain the 25% tax free does not exit so I would pay tax on the whole withdrawal amount. What is the most tax efficient way to minimise the amount of tax to pay in this scenario?

*Edit to clarifyThe plan would be to withdraw and transfer a sum monthly from from a UK pension to a Spanish bank as a resident in Spain. In the UK I would only pay tax on 75% (first 25% of withdrawal tax free) of each withdrawal but in Spain I assume you would pay tax on 100%

spainrico

Wait until the money taken is outside of the Spanish tax year. (Jan-Dec)

Notdunroamin

You're correct that tax free lump sums do not exist Spain, assuming you are fiscally resident then you must declare your gross worldwide income.

The only way to avoid tax on lump sum is to take it before you become resident or keep your gross income below the tax thresholds which are a fair bit less generous than UK's.

Fred James

Lump sums and drawdowns are taxed but depending on when the contributions were made, you may get up to a 40% reduction in the tax.

Payments from a personal annuity are taxed at very low rates with, on average, only 25% of the amount being taxed.

Barriej

I moved my 25% in late 2019 and moved here in August 2020. Im using the 25% and a small monthly amount from the pension to live on. (do have other savings as well though)

Once I file my first Spanish tax return I will decide on increasing the amount to just under the tax threshold here. The 25% is in premium bonds at the moment and I move over enough to keep us going every 3 months or so.

The only thing is, if you retiring here you will have to show a reasonable amount of finances to obtain the visa. You may want to look at that when it comes to your financial planning. Its now a lot more than it was last year.

Siftersam

Thank you, I based my drawdown calculation on leaving the tax free 25% invested, however, I think I may look at the alternative option now of taking it and investing in an ISA or similar. A bit of a shame as my pension out performs any instant access ISA and premium bonds (particularly now following recent changes). But then thinking about it, if you're using up the 25% you had tax free in the UK I assume you should declare that as income in Spain and pay tax on it anyway. I'm not sure I can see a way around it?

I checked the requirement for the non lucrative visa, £30,165.00 for us as a couple + a likely 3K for health insurance. I can cover this ok but in reality do not expect my outgoings in Spain without a mortgage to be £2,700 / month!

Not sure what you mean, Spanish basic personal allowance?

Thanks for the reply.

Notdunroamin

Taking the 25% (called 'crystalising) is income even if immediately invested elsewhere.

The Spanish tax system is not as simple as in UK where you have an allowance then pay tax in set bands above that.

Here there are multiple factors which can make it difficult to work out for yourself. For instance taxes are split between state and local each with different thresholds and percentage rates, age can come into it too.

Also you can elect to be taxed individually or as a couple but you have to work out yourself which is most beneficial.

Joppa

Pre-Covid, you could go to the tax office (Agencia Tributaria) with an appointment, take all your financial details, and they would show whether you are better off being taxed jointly or separately. You need Spanish for this so you could take a translator. A gestoría or asesoría fiscal can also help make your tax declaration, for a fee.

Barriej

Im using a company attached to the solicitors to do ours. Im the only income generator so we will file as a couple for maximum benefit. I think its only a couple of hundred euros and my son will have to continue to pay the non residents tax as he is in the deeds as well.

Would agree that its nowhere as simple as in the Uk, its not just a case of adding the two basic allowances there are other bits, best to leave it to someone who knows. I will stick to my area of expertise.

Fred James

No you don’t, the computer program that is used by everybody tells you the best option.

Siftersam

All comments appreciated, must say that the more I read the more I'm tending towards employing a professional to deal with my tax obligation. Sounds like it will save me hours of stress and probably money in the long term.

Fred James

Thats not a bad idea, but finding one that fully understands the implications of Brits tax affairs, like the double tax treaty etc, is not always easy. Some of the people at the tax office get it wrong! If you can, use an English advisor who has been here some time. Once you have seen how he does it, it is pretty easy to do it yourself online.

Lynn R

Even in 2020, during the pandemic, that service was still available although appointments weren't made available until 8 June (they would normally have started face to face appointments in mid May). My husband got an appointment and went to the Hacienda office for them to complete his return, as due to a computer problem he wasn't able to access his copy of the previous year's return to be able to generate the numero de referencia. I did mine online as usual. What he wasn't able to do, however, was take a translator with him - only one person could attend the appointment. He does not speak very good Spanish but managed fine. If you write down all your personal details on a sheet of paper beforehand (name, date of birth, NIE, marital status, number of dependent children, number of dependent elderly relatives living with you, autonomous region you live in, address) plus figures for your income for the previous 1 January - 31 December year already converted into euros, and any exempt income such as Crown Pensions shown separately, and your bank account information (they like to see this on a document from the bank rather than just written out by yourself) then you would barely have to speak a word of Spanish. They do not ask for any proof of income.

https://www.elmundo.es/economia/macr...85c8b461f.html

bolton wanderer

Have a play around with a Spanish Tax calculator .....................https://taxleak.com/spain/ (ignore social security unless actually working in Spain)
It's a bit basic but should give you an idea of how the tax bands work.

Barriej

Nope to the bit in bold, if you remove the 25% in the tax year (Spanish) before you move over it remains tax free.

As I said I took mine in 12019 and we than moved over in Aug 2020.

Now even though we were only here for less than 183 days we could have been considered tax residents.
However the accountant who is looking after my meagre savings and pension pot has said that my first return will be 2021 to take care of 2020 income.

I worked and paid tax from Jan to June 2020 in the UK and had no other income.
So Im not expecting to pay tax here for 2020 (seeing as my wife did not work at all during 2020) and I will have her allowance as well. According to the accountant.

As to the personal allowance, Spains tax system is complex compared to the UK, I have no clear idea how it works so I wont comment.