When planning a move to Spain, understanding the financial implications of fiscal residency is critical. Spain’s taxation rules differ from many other countries, and becoming a fiscal resident can have significant consequences for your global income, capital gains, and investments.
Spain considers you a fiscal resident if you spend more than 183 days in the country during a calendar year. Once you meet this threshold, you are required to declare and pay taxes on your worldwide income in Spain. This includes employment income, self-employment income, investment returns, rental income, and capital gains from the sale of properties or other assets. Planning your move strategically can help you avoid fiscal residency in your first year and minimize tax liabilities.
The importance of selling Assets before moving
One of the most critical financial steps when relocating to Spain is managing the timing of asset sales and pension withdrawals. These actions can have significant tax consequences if done after you become a fiscal resident.
Selling Your Home
For UK residents, selling your main home is typically exempt from capital gains tax. However, in Spain, any property sale—regardless of its location—could be subject to capital gains tax once you become a fiscal resident. To avoid this, it’s crucial to sell your property before moving to Spain and becoming a fiscal resident. This ensures you take full advantage of the UK’s tax exemptions and avoid Spanish taxation on the sale.
Taking Lump Sum Pensions
Pension withdrawals also require careful planning. In the UK, you can withdraw up to 25% of your pension pot tax-free. However, this tax-free status is not recognized in Spain. Once you become a fiscal resident, any pension withdrawal—including lump sums—is taxed as income in Spain.
Other Assets and Investments
Similarly, investments such as ISAs, which are tax-free in the UK, are fully taxable in Spain. Dividends, interest, and capital gains generated from these investments will be included in your taxable income as a fiscal resident. Restructuring or selling these assets before moving to Spain is another way to minimize tax exposure.
Avoiding Fiscal Residency in Your First Year
Spain’s fiscal year runs from January 1st to December 31st, coinciding with the calendar year. By delaying your arrival until after June 30th, you can ensure you spend less than 183 days in Spain during that calendar year, avoiding fiscal residency for the year of your move.
For example:
• Scenario 1: You arrive in October 2025. Since you will have spent fewer than 183 days in Spain during the 2025 calendar year, you will not become a fiscal resident until 2026.
• Scenario 2: You arrive in March 2025. By exceeding the 183-day threshold, you will become a fiscal resident for the entire year of 2025 and must declare worldwide income and pay taxes in Spain for that year.
It’s essential to track your time in Spain carefully and ensure you maintain fiscal residency in your home country until you are ready to take on the tax obligations of Spanish residency.
Plan Ahead to Save
Relocating to Spain requires careful financial planning. Selling your home, withdrawing pension lump sums, or restructuring investments before moving can save you from unnecessary taxes. Failing to do so could expose you to double taxation or higher Spanish tax rates.
At Salvador Tax & Legal, we specialize in helping expats navigate these complexities. Whether it’s timing your move, managing your assets, or preparing for fiscal residency, we’re here to provide expert advice tailored to your needs. Don’t wait until it’s too late—contact us today to ensure a smooth transition to your new life in Spain.
