Over the years, We have guided numerous expats through their move to Spain, and a common theme that emerges is the need for sound financial and tax planning. Whether you’re retiring, starting a new chapter, or seeking a warmer climate, understanding Spain’s tax system is crucial to making the transition smooth and efficient.
One of the most important things to remember is that Spain’s fiscal year runs from January to December, which is different from countries like the UK, where the tax year runs from April to April. This difference may not seem significant at first, but it can heavily influence how and when you become a fiscal resident in Spain.
Becoming a Fiscal Resident
In Spain, the general rule is that you will be considered a fiscal resident if you spend more than 183 days within a calendar year in the country. Fiscal residency means that you will need to declare your worldwide income in Spain and potentially pay taxes here. This is something many new residents underestimate—thinking that physical residency is not tied to taxation—but this assumption can lead to surprises down the line.
Capital Gains on Your Main Home
For many expats, selling their main home before moving to Spain is part of the plan. In the UK, if you sell your main residence, you’re often exempt from capital gains tax (CGT). However, if you become a fiscal resident of Spain, things get more complicated. Spain could potentially tax the capital gain on the sale of your property even though it is located outside Spain.
Here’s the critical part: if you sell your home before becoming a fiscal resident in Spain (for example, before spending 183 days here in the same year), you can potentially avoid being taxed in Spain for that sale. Planning when you arrive is vital to ensuring you’re not caught up in unexpected tax liabilities.
The Challenge of ISAs
ISAs are another area where expats face difficulties. In the UK, ISAs provide a tax-free wrapper for your investments. However, once you become a Spanish tax resident, these investments do not receive the same favorable treatment, and income or capital gains derived from them could be subject to taxation in Spain. A proactive plan to either withdraw from or restructure these accounts before becoming a tax resident in Spain is advisable.
Timing and Strategic Planning
The overarching theme is that timing is everything when it comes to moving to Spain. Aligning your move with the fiscal year, selling property before becoming a fiscal resident, and reviewing your investment portfolio (like ISAs) are essential to avoid tax surprises.
At Salvador Tax & Legal, we specialize in helping expats navigate these complexities. We’ve seen the difference it makes when clients seek advice early on, allowing them to structure their finances in the most efficient way possible. By planning your move carefully, you can save yourself from unnecessary financial headaches and ensure that your new life in Spain starts off on the right foot.
If you’re planning your move to Spain, reach out to us for tailored advice on how to make the transition both smooth and tax-efficient.
