Retiring in Spain
More and more people are considering retiring abroad for a range of reasons and Spain becoming the choice of many retirees.
A large percentage of retirees choose Spanish coastal locations such as the Costa del Sol, Costa Blanca, Balearic Islands, Canary Islands, Costa Brava or Murcia as the location for their perfect retirement from work. Spain offers them affordable coastal properties, low living costs, a warmer more equitable climate, entitlement to state healthcare (for pensioners), in many cases a thriving British ex-pat community, and easy access back to the UK with frequent low cost flights from many Spanish airports.
If you are considering retiring to Spain there are a number of practical considerations that should be taken into account and addressed such as whether you buy or rent a property in Spain, pensions, visas, healthcare, taxation etc. This is a decision that shouldn’t be rushed; you need to be fully prepared to make sure that you have covered every angle of your new Spanish life. Researching into what exactly living in Spain would entail is essential, as is taking professional advice in order to make an informed decision about whether it is the right move for you. This preparation will help to make your retirement to Spain a successful one and help to make the transition as smooth as possible. To help you achieve the Spanish retirement dream here are a few pointers to help with your research:
Living in Spain and what to expect
Retiring to a new country is not to be seen as an extended holiday, it is a real lifestyle change. If possible, we would advise that you visit and stay in as many parts of your chosen area of Spain as you can, and at different times of the year so that you can be sure of the location that will best suit your chosen lifestyle and needs. Perhaps even consider renting a property in that part of Spain in winter first before making a permanent move as it can be very different to summer and this will allow you to also experience the changing climate of the area.
It is of course fantastically hot in Spain in the summer, but in coastal areas particularly it can get cold and damp in the winter. Many ex-pats who have retired to Spain report that in many areas winter is far colder than they expected and whilst it doesn’t get down to minus figures when winter arrives, the houses are cold. Central heating is not a regular occurrence in Spanish homes as they tend to use log or wood burners so you will need to be certain that you can adapt to this lifestyle change.
Winter is also very different to summer in some areas of Spain that are heavily tourist orientated. It can become more peaceful and desolate as the tourist season ends and many of the bars, restaurants and services close. The buzzing atmosphere of a Spanish resort in the tourist season only lasts four to five months so you can expect to live a quieter life for the majority of the year.
The lifestyle in Spain is generally very laid back and patience is a pre-requisite to successfully living in a Spanish community. For example, if you have an appointment at the bank for midday this does not necessarily mean that it will be at midday it could be an hour later! This applies to everything you do from waiting in the supermarket, to getting your car fixed, waiting for food in restaurants, etc. Spain is renowned and loved for its somewhat slower pace of life which is very attractive to many retirees, but this does mean that it takes longer for things to happen and things work slower. If you are the type of person that likes things to happen quickly at a touch of a button, if you are naturally impatient and always want things done in a flash, then you need to consider if this pace of life retiring to Spain is for you.
Practicalities that you need to know about retiring to Spain
Applications for residency in Spain and for an NIE
If you are a British citizen or British subject with right of abode in the UK, you don’t need a visa to enter Spain but do require a valid British passport. However from July 2012 the Spanish government introduced details of the new residency requirements for all EU citizens, including British nationals who wise to reside in Spain.
If you are a national of a member state of the European Union, other States party to the Agreement on the European Economic Area, or of Switzerland, then you are entitled to reside in Spain for longer than three months. If you wish to retire to live in Spain then you will be required to hold a residence certificate that must be obtained within three months of arriving. You are legally required to secure a Número de Identidad de Extranjero (a foreign identity number known as NIE) and a Tarjeta de Residencia or residency card which is obtained by registering in person at the Oficina de Extranjeros in your province of residence or at a designated Police station. Your NIE Number is basically a tax identification number for foreigners in Spain. You also need this if you are going to buy a house or a car in Spain.
Your application for registration must be accompanied by your passport or national identity document, which must be valid at that time. As a retired person (assuming that you will not be working whilst living in Spain) you will be required to comply with two conditions:
- That you hold public or private health insurance that has been taken out in Spain or in another country, provided that it ensures cover in Spain during your time of residence. This private health insurance cover must be equivalent to the cover provided by the National Health System. If you are a pensioner then you will be considered to meet this condition if you can prove that you are entitled to health care paid for by the State from which you receive your pension.
- You must have sufficient resources to financially support yourself and your dependant family members. This is to ensure that you will not become a burden on the Island’s social welfare system during your time of residence in Spain. You should be able to provide proof of the possession of sufficient resources, whether from regular income or from ownership of assets. This must be provided by legally admissible evidence such as certified cheques, property deeds or documentation proving that income from capital is received or credit cards. If you are using income from a credit card a current bank certificate proving the amount available by way of credit on your card must be produced. Should you have financial resources which exceed the amount established each year by the State General Budgets Act “Ley de Presupuestos Generales de Estado” that justifies the right to receive non-contributory benefits, this will be regarded as sufficient proof to meet this income requirement.
Once registered you will be issued a credit card size Residence Certificate stating your name, address, nationality, NIE number (Número de Identificación Extranjero) and date of registration. After five years of residence registration you are entitled to apply for a certificate of permanent residence in Spain.
If a member of your family is Non-EU there is provision for them to enter Spain on a valid passport and visa (where required), to reside with yourself as an EU citizen. This is providing they also register in person at the Oficina de Extranjeros or a designated police station within 3 months of entry with the documents required. They will be issued with Tarjetas de Residencia de Familiar de Cuidadano de la Union (Residency cards for family members of EU citizens).
We also recommend that you apply for your Padron document, which registers you as resident in your municipality and ask at your local town hall for a pensioner’s card (tarjeta de jubilado/ tarjeta de pensionista), which gets you discounts and other benefits.
More details about the application process and documentation you need are available on the website of the Spanish Ministry for Work and Social Security.
Taxation in Spain
If you retire to Spain and spend more than 183 days per calendar year resident in the country this means you should become tax resident there as taxation is determined by how much time you spend living in Spain and where the majority of your assets are held. If you decide to split your retirement between Spain and the UK and are therefore unsure of your residency status, this can be easily worked out using the Statutory Residence Test which was introduced in 2013.
At some point after relocating to Spain, you will need to inform HMRC that you are no longer tax resident in the UK. If you do not register yourself as tax resident in Spain and pay tax there when legally you should, this could land you in serious trouble, even if you are continuing to pay tax in the UK on UK sourced income.
Most income that arises in the UK, including rental income will continue to be taxable in the UK. Typically, you must still declare this income in Spain, but thanks to the Double Taxation Convention between Spain and the UK this prevents income being taxed in both countries when a resident of one country has income arising from a source in the other country. This basically means that you should not be taxed for the same things twice. It is important to note that not all incomes and gains are taxable in both countries and therefore if you do not get this right you could end up paying more tax than you need to.
British nationals will not generally pay UK tax on their State Pension if they are not resident in the UK. Double taxation is avoided by allocating an exclusive right to tax to the UK (if this is your paying state). This means that if you are living in Spain and receiving a UK Government Service pension, it will only be taxable in the UK. All income received by a resident in Spain is now taken into account to calculate the applicable rate of income tax, regardless of whether the income itself is taxed in Spain. Therefore an exempt UK Government pension will be taken into account for the purposes of determining the tax rate which applies to other income which is taxable in Spain.
All residents in Spain are legally required to declare any assets held outside of Spain. These include bank accounts, securities, rights, insurance, annuities, property etc., and the declaration is a separate exercise to the annual tax return. As part of the Spanish Government’s anti-fraud law, all Spanish residents are required to file an annual informative declaration of assets held overseas by 31 March each year.
In addition to income tax, Spain also has a wealth tax. This has been designed specifically for residents who hold significant worldwide wealth, so does not realistically affect the majority of expats.
Taxation is a complex issue and we strongly recommend that you seek the advice of a legal professional regarding wealth tax, capital gains tax, as well as local taxes.
Receiving a UK pension in Spain
If you retire to Spain you will still be entitled to receive your UK State Pension providing that you inform the Department for Work and Pensions and have paid appropriate national insurance contributions. Your state pension will increase in line with pensions paid in the UK.
You can opt to have your monthly payments paid into your UK bank or building society account or a Spanish bank account.
If you do decide to have your UK State Pension paid into a Spanish bank account you will need an IBAN which stands for ‘international bank account number’ and a BIC – bank identification code for your account. Please bear in mind that if you do decide to have your UK State Pension paid directly into your Spanish bank account means you will have no control over the euro exchange rate used for the transfer. For this reason many British retirees opt to have their UK State Pension paid into their UK bank account in Sterling. They then use a currency transfer specialist to send euros to their Spanish account are the exchange rates offered by currency specialists are better than those received if your UK State Pension was sent direct to Spain through a UK bank. Another advantage of using a currency transfer specialist is that this allows you to fix an exchange rate for future transfers. So you will always know exactly how much your UK State Pension will be worth in euros as well as in Sterling which will help the household budget.
If you also have a personal or workplace pension we strongly recommend that you seek the advice of a professional financial advisor in the UK. They will look at your various funds and investments and be able to offer beneficial tax efficient options for structuring all your assets and funds when your retire to live in Spain.
You cannot claim Pension Credit (income-related benefit made up of 2 parts – Guarantee Credit and Savings Credit) if you decide to retire to live in Spain permanently so must inform the office that pays your benefit before you leave.
You may still be eligible for other UK benefits if you move to live in Spain when you retire providing you meet the required criteria. Ironically, this also includes winter fuel payments to older emigrants.
Inheritance laws in Spain
When enjoying your retirement and planning a move to live in Spain, passing your property on to your loved ones is probably the last thing that you wish to think about. However, it is vital that you make sure that your will covers your assets in Spain as well as other worldwide assets including any UK property you may still own. Even the factor as to ‘how’ you purchased your Spanish property can have a significant bearing upon how your estate will be dealt with and taxed in future, so getting our affairs in order is vital.
The Spanish rules governing succession law for expats can be complex. They take into account factors such as residence or habitual residence, domicile, nationality etc.in order to determine what laws should apply to a deceased’s estate. If someone dies in Spain intestate this can make the issues even more complicated as the country has forced heirship laws.
In August 2015 the European Union attempted to simplify things by introducing a new Succession Regulation affecting British people who own property in Spain, whether it’s a second home or permanent residence. This means that the default position for succession is governed by the law of the country in which the deceased was ‘habitually resident’. The new rules also state that an EU citizen may choose to apply the law of their own nationality to the succession and administration of their estates but this must be clearly stated in a will.
Many retirees who move to Spain retain their UK domicile status which is different to residency or habitual residency and therefore means that their worldwide estates will be subject to UK inheritance tax as well as succession tax in Spain. Succession tax in Spain is paid by the person who receives the assets and ownership cannot be transferred until the tax is paid. Also, succession rules and tax rates vary by autonomous region.
Both Spain and the UK offer relief for inheritance tax liability. Generally this means that inheritance tax is paid in the jurisdiction demanding the highest amount. So for example if it is paid in Spain a credit note will then be sent to the UK, thereby confirming the tax has been paid and no more is due. Inheritance tax can be as high as 34% so it is well worth discussing and planning thoroughly with your solicitor and financial advisor before moving to a your new life in Spain.
It is important; particularly in your twilight years that you feel reassured that you have access to good-quality healthcare. Spain has a very good reputation in this respect and the Spanish health care system is rated among the best in the world.
British people in receipt of a UK State Pension are entitled to the same level of state healthcare as a Spaniard under the national insurance scheme due to Spain and the UK being members of the European Economic Area (EEA), meaning certain benefits are transferrable between the two countries. However if you are not in receipt of a UK State Pension you will need to join a private healthcare system with private health insurance. Fortunately, this is generally reasonably priced, and there is a wide variety of excellent plans from which to choose.
If you are in in receipt of a UK State Pension then it is advisable to start the process before leaving the UK, by applying for an S1 form from the International Pension Centre. On arrival in Spain, register your S1 at your local Instituto Nacional de la Seguridad Social (INSS) office to receive an accreditation letter, which will enable you to register with a doctor at your local medical centre. To register you will need to produce your NIE, passport and certificates of local and national residency. You will then receive a health card (tarjeta sanitaria), which you present when you use the health service.
If you decide to retire to live in Spain you may wish to import your own UK registered vehicle to the Island. Under Spanish law you must register your vehicle with the Spanish authorities. You will be required to pay taxes by the Dirección General de Tráfico when importing and registering your UK vehicle including:
A registration tax (or certificate of exemption)
A road/traffic tax (or certificate of exemption)
VAT (or certificate of exemption)
Depending on your circumstances you may be exempt from one or more of these taxes.
There have been changes to the use in Spain of UK driving licences as of 19th Jan 2013 with the aim of harmonising the issue of driving licences across all member states of the EU. If you are resident in Spain and hold an old-style UK licence which does not have the 10-year validity period once you have resided for two years, you are obliged to renew or exchange your UK driving licence for a Spanish driving licence. Of note is that once your UK photocard licence expires, or if your UK licence is lost or stolen, you will not be able to renew this with the DVLA if you are residing in Spain. Bearing this in mind it may be easier to convert your UK licence to a Spanish licence before it expires. If your UK driving licence is lost or stolen, you can apply to the DVLA for a ´certificate of entitlement’ in Spanish that can be used to apply for a Spanish driving licence.
Spanish motor insurance regulations differ from those in the UK so it is vital that you check carefully what cover your car insurance policy provides.
If you decide to purchase a car when living in Spain, there is a transfer tax to pay to the Government. This tax can be a significant extra cost depending on the size of the car and particularly if you decide upon buy a 4×4! Try and negotiate with the vendor to possibly split this tax between you. You will need to employ the services of a local ‘Gestoria’ who will co-ordinate the transaction through on your behalf and pay the fees etc. Always ensure that you ask the Gestoria to check whether or not the car has any outstanding loans or fines registered against it to prevent the police trying to impound your car later on in your ownership, with the car still not in your name!
Hablas Espanol? Learn Spanish
If you are considering retiring to live in Spain then you would be well advised to learn Spanish. Whilst Spain is a cosmopolitan mixture of internationals and Spanish, to fully immerse yourself into the Spanish way of life, learning their language so that you are better able to integrate better is highly recommended. You can of course learn Spanish when you arrive but why not be ahead of the game and learn the lingo before departure. This way you can improve your language skills by practicing every day when living there speaking to the locals.
Living costs for retirees in Spain
If you budget carefully then daily living costs when you retire to Spain can be cheaper than in the UK. What must be borne in mind is that for many retired people they live in Spain relying on Sterling-based income so therefore the cost of what is spent each month will tend to fluctuate with the exchange rate
You will notice that one of the savings that you will make by retiring to Spain is your council tax bill. Spanish council tax is known as IBI and is paid direct to the town hall or SUMA offices. The amount is based on the rateable value of your property and this varies by area and region however, generally your annual bill will not be any more than for a comparative UK property.
The cost of utilities such as electricity and water are on a par with the UK, but expect to pay more for your internet and satellite connections. Gas will depend on whether you are mains or use LPG and if you use it for heating or just for cooking on. Air conditioning is very common in most properties in Spain due to high temperatures and this can easily increase your electricity bills in summer months, as well as in the winter if you use the systems heating function.
If your Spanish property is part of a complex or development, it is likely that you will be required to contribute to the upkeep of communal areas, such as the gardens or swimming pool through community fees, which vary according to the area and on-site facilities.
As we mentioned previously unless you know Spain really well during both the peak tourist and closed season, we highly recommend that you firstly consider renting a place. This option will give you time to fully familiarise yourself with the area in which you wish to live and get a proper feel for where you really want to be located. If this is not an option then why not plan a number of off season visits and explore all the areas that interest you at different times of year to get a true feel for the place as a potential home. Many areas of Spain change considerably over the year, being lively in the summer and like a ghost town during the winter. Whilst you may dream of retiring to haven of peace and tranquillity, there is a fine line between that idyll and isolation that only you can define for your personality.
Renting or buying a property to retire to in Spain
Let us first look at the option of renting a property in Spain to spend your retirement years or as a precursor to purchasing Spanish real estate.
Many retirees choose to retire to a Spanish coastal resort many of which are primarily tourist destinations. This makes it very difficult to find long term rental options near to the summer months and virtually impossible once the summer season is underway. Therefore you would be well advised to look at moving from around the beginning of October through to March. Ideally make contact with estate agents at least six weeks before you wish to move out to Spain to allow the agents chance to find you suitable properties to view. Whilst this seems very last minute there is reason for this in that long term rentals at a reasonable price move quickly in many parts of Spain, so it is wise to act as soon as you see something you like as the majority of landlords are unwilling to hold property for someone who does not want to start paying rent before they have moved in.
We always advise that you view your chosen Spanish property to rent in person where possible and do not rely on estate agents photographs as these can be deceiving. However, if you cannot view in person then thoroughly check out the agents credentials before you send any money. Request a copy of their NIE number and passport if they are self-employed or have a solicitor check their company registration if they are part of a larger business to avoid being a victim of a scam.
When you have chosen your Spanish property to rent your estate agent should then draft a contract for you or check the contract provided by the owner to make sure there are no unfavourable or illegal clauses. If renting direct from a landlord and the contract is in Spanish ask for an English translation before you sign or have it checked by a solicitors office. They are not legally obliged to provide the contract in any other language than Spanish so you may have to pay for this but it is wise have the contract legally checked in any event.
The term of the contract is by mutual agreement but is generally between one and three years. However if it is only for a year and the owner does not give you the required written notice at the end you will have an automatic right to a further two years.
Generally you will be required to pay a deposit as security against damage (between one and three months’ rent depending on the landlord s preference), plus one month’s rent in advance and the estate agency fee if you used one. This is usually the equivalent of a month’s rental payment although some agents charge a little less or even more. In recent years it has become quite common for landlords to ask for one year’s rent in advance. This is generally done to protect them from a tenant disappearing at the end of the summer before their lease has expired, so if this not a viable option check before you spend valuable time viewing a property.
If your mind is made up and you have decided to purchase a property for sale in Spain straight away, then familiarise yourself with the time scale and process in advance to help with your plans. As with most house purchases you do not need to move as soon as the sale has been completed, but many retired people prefer to do so to immediately begin their retirement in sunny Spain.