UK & Spain Tax Advice for Expats

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Introduction

We have created a new website for British and Spanish expats moving between the UK and Spain and need tax advice.

Moving between the UK and Spain presents numerous financial and tax challenges. Whether you’re a UK national relocating to Spain for work or an expat returning to the UK, tax residency rules, income tax liabilities, and compliance requirements must be carefully managed. Failing to plan effectively can result in unexpected tax bills, double taxation, and penalties from HMRC or the Spanish tax authorities.

Understanding the tax systems in both countries and leveraging available reliefs can help expatriates remain compliant and tax efficient.

Understanding Tax Residency in the UK and Spain

Tax residency determines where you pay income tax and is a crucial factor for expats. The UK follows the Statutory Residence Test (SRT), which assesses the number of days spent in the country and personal ties. Conversely, Spain deems individuals tax residents if they spend more than 183 days in a calendar year or have significant economic ties, such as property ownership or a primary business base.

If you become a Spanish tax resident, you are subject to worldwide taxation, meaning income earned in the UK, Spain, and any other country must be declared. However, the UK-Spain Double Taxation Treaty prevents dual taxation by allowing taxpayers to claim relief for taxes paid in one jurisdiction against liabilities in another.

Moving between the UK and Spain requires specific international tax guidance for expats. Spanish and British taxes can be complex in nature and getting advice before you move is very important

Key Tax Obligations for Expats Moving Between the UK and Spain

Income Tax

UK tax residents pay tax on worldwide income but may claim the Personal Allowance if eligible.

Spanish tax residents are subject to progressive income tax rates ranging from 19% to 47%.

Non-residents in Spain pay a flat tax rate of 24% (or 19% for EU citizens) on Spanish-sourced income.

Capital Gains Tax (CGT)

CGT applies to selling property, shares, and other assets in the UK at 18% to 24%.

Spain imposes progressive CGT rates (19% to 28%) on gains from property or investments.

The UK-Spain tax treaty allows relief to avoid double taxation on capital gains.

Wealth Tax in Spain

Spain levies an annual Wealth Tax on worldwide assets for tax residents (rates range from 0.2% to 3.5%).

Non-residents only pay wealth tax on Spanish-based assets.

Exemptions and deductions apply, including the central home allowance of €300,000

Practical Tax Strategies for Expats

Timing Your Move to Minimise Tax Exposure

Proper planning can help expats avoid becoming tax residents in the UK and Spain in the same year. You can manage residency status and optimise tax liabilities by strategically timing your arrival and departure dates. For instance, arriving in Spain after July 1st can help you avoid becoming a Spanish tax resident for the year.

Utilising Double Taxation Relief

The UK-Spain Double Tax Treaty allows expats to claim tax relief, ensuring that income is not taxed twice. This applies to employment income, pensions, dividends, and rental earnings. Filing the necessary forms with HMRC and the Spanish Agencia Tributaria ensures smooth tax relief claims.

Managing UK Pensions and Investment Taxation

UK pensions may be taxable in Spain under Spanish income tax laws. However, Qualifying Recognised Overseas Pension Schemes (QROPS) can offer tax advantages for long-term expats. Investment income, such as dividends and rental earnings, must also be declared in both countries, with tax credits available to offset liabilities.

Corporate Tax Considerations for Business Owners

Expats running businesses in Spain must comply with corporate tax regulations, including registering for a NIF (Número de Identificación Fiscal) and submitting Spanish corporate tax returns. UK limited companies operating in Spain may need to register for VAT (IVA) and withhold local tax on payments.

Compliance and Reporting Requirements

Expats must comply with multiple tax reporting obligations:

UK Expats in Spain: Must file Modelo 720 (declaration of foreign assets) and annual income tax returns (IRPF).

Spanish Expats in the UK: Must file Self-Assessment tax returns with HMRC if earning above the threshold.

Bank Account Reporting: Expats must report overseas accounts under FATCA and CRS regulations.

Q&A: Common Expat Tax Questions

How do I avoid double taxation when moving between the UK and Spain?
Claiming relief under the UK-Spain double taxation treaty can offset taxes paid in one country against liabilities in another.

What tax forms must I file as a UK expat in Spain?
You must file a Modelo 720 (foreign assets declaration), a Spanish income tax return (IRPF), and report worldwide income.

Are UK pensions taxable in Spain?
Yes, UK pensions are subject to Spanish income tax, but the treaty ensures UK tax relief.

How does Wealth Tax affect UK expats in Spain?
Spanish tax residents must pay Wealth Tax on worldwide assets, while non-residents pay only on Spanish assets.

Can I still use my UK bank account while living in Spain?
However, UK banks may restrict services for non-UK residents due to Brexit-related banking regulations.

Conclusion

Understanding tax laws when moving between the UK and Spain is critical for financial security and compliance. Seeking expert tax advice ensures expats optimise tax relief, avoid penalties, and efficiently structure their finances. Whether you are relocating for work, retirement, or business, careful planning will help you navigate the complexities of cross-border taxation seamlessly.

Book a call to see how we can help you.

Consultation options.

We offer the two following options for initial consultations.

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