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Spain
While it's crucial to secure Spanish residence in 2020 if you want to live permanently in Spain, don’t forget to adjust your tax, investments, pension and estate planning to suit your new home.

With just months to go before the end of the Brexit transition period, many UK nationals are rushing to secure residency in Spain. Those who are lawfully settled before 31 December 2020 can lock in a lifetime of citizens’ rights under the UK/EU Withdrawal Agreement. This protects access to healthcare, social security, education and employment opportunities for as long as you remain resident.

Most people are focussed on getting into the Spanish system as quickly as possible. However, without careful planning, changing residency can have unexpected financial pitfalls, not least because residence in Spain makes you subject to Spanish tax and succession rules. It is also advisable to review your investments and pensions to ensure they are suitable for this new chapter of your life.  

Getting it right from the outset makes things easier and cheaper, so do your research on living in Spain and take professional advice as soon as possible.

Anyone moving to Spain needs to prepare for a completely new tax regime. Be aware that the autonomous communities can adjust tax rates and rules, so you need to research your particular area.

First of all, establish when you become liable for Spanish tax on your worldwide income, gains, wealth and estate.  

In Spain, you are considered to be a tax resident if you spend more than 183 days in Spain during the Spanish tax year (calendar year) or if your main professional activity or most of your assets are based in Spain. You can also be considered resident if your spouse and/or minor children live in Spain (unless you prove otherwise). There is no split year treatment; you are either resident or non-resident for the whole year.

Spanish taxation can appear complicated and potentially high. But the good news is that, with expert planning, it is possible to structure savings, investments and assets to be tax-efficient, depending on your circumstances. 

France
If you’re moving to France, make sure you understand how French income tax, wealth tax, inheritance tax and succession law works, and how you could take advantage of opportunities available for you and your heirs.

Are you a UK national hoping to secure residence in France before the transition period ends? Or have you recently started your new life here? Either way, it is important to prepare for French taxation and adjust your wealth management accordingly for living in France. 

Generally, once you arrive in France to live here indefinitely, you become tax resident the following day. You are deemed resident for tax purposes if your main home is in France, or it is your principal place of abode (you spend 183 days here a year), or your principal activity or centre of economic interests is in France. 

Research all the various taxes you will be exposed to in France, then establish where your assets stand in consideration of those taxes and what you can do to improve your tax position. 

Income tax rates for 2020 range from 11% for income over €10,064 to 45% for income over €157,807. An additional 3% or 4% tax is levied on income over €250,000 and €500,000 respectively, with higher thresholds for families.  

Social charges are additionally payable on income, at 9.7% for employment income; 9.1% for pension income and 17.2% for investment income.

Retirees with Form S1 escape social charges on pensions and pay a lower 7.5% rate on investment income – however, we do not yet know what the situation will be for those who take up residence, or are only eligible for the S1, from January 2021.

Investment income benefits from a special fixed rate of 30%, which includes both income tax and social charges.   

This used to apply to the entire wealth of a household, but is now only levied on real estate assets. This annual tax affects households with real estate wealth exceeding €1,300,000. The first €800,000 is tax free, then rates range from 0.5% to 1.5%.

Portugal
There’s no doubt that Portugal is a fantastic place to call home, but did you know it can also offer financial advantages?

With early, careful financial planning, you can make the most of tax-efficient opportunities and avoid potential mistakes.

Here’s food for thought if you have a holiday home or enjoy spending time in Portugal – from 2021, it is likely that non-resident UK nationals will only be allowed to stay up to 90 days in a 180-day period in Portugal without a permit or visa.

For UK nationals who want unlimited access to the country, it is therefore crucial to register for Portuguese residence before the Brexit transition period ends on 31 December 2020. 

Becoming resident this year will not only secure your right to remain, it will guarantee citizens’ rights, including access to healthcare and pension benefits, for as long as you live there. 

It usually takes 183 days spent in Portugal to be recognised as a tax resident, but this can be earlier if you have a permanent Portuguese home. Once resident, your worldwide income and certain gains become liable for Portuguese taxation, so make sure you are prepared. 

The good news is that Portugal offers generous tax benefits to new residents for their first ten years there through the ‘non-habitual residence’ (NHR) scheme.

Under NHR, those employed in Portugal in a ‘high value-added’ profession pay a flat 20% income tax rate, rather than the usual rates up to 48%. NHR can benefit retirees too, as foreign pension income is taxed at just 10%. 

Not only that, non-habitual residents can receive most foreign income tax-free in Portugal. 

Cyprus
Many UK nationals are rushing to secure residency in Cyprus before 31 December to retain EU rights. They need to look at the local taxation rules and adapt their financial plans, including pensions and investments.

Getting it right from the outset makes things easier and cheaper, so do your research on living in Cyprus and take professional advice sooner rather than later. That said, there are usually steps you can take to improve your tax and estate planning even if you already live in Cyprus.

Generally, you are resident in Cyprus for tax purposes if you spend 183 days in the country in a calendar year. So if you move to Cyprus later this year, you won’t be liable for Cyprus income tax until 2021.

There is second rule where you can be tax resident spending just 60 days in Cyprus, but you also need to be employed or carrying on a business and not tax resident in another country.

The good news is that taxation can actually be one of the advantages of choosing Cyprus as your new home.

Residents of Cyprus are taxable on their worldwide income paying either income tax or ‘defence contributions’ (or both in the case of rental income).

The defence tax applies to worldwide investment income of individuals who are resident and domiciled in Cyprus. The domicile rule means that most British expatriates are exempt for their first 17 years of residence (unless they were born in the Republic). For those who are not exempt, it charged as follows:

• Interest – 30% (reduced to 3% if your income is less than €12,000)
• Dividends 17%
• Rental income – 3% (on 75% of gross income)

 All other income, plus rental income, is taxed at the scale rates of income tax.

Your first €19,500 of income is tax free. Tax rates then start at 20% and rise progressively to 35% for income over €60,000.

Foreign pension income receives special treatment and you choose how it is taxed each year:

1. At a flat rate of 5% on the excess of €3,420 (this sum being exempt), or
2. At the normal scale rates of income tax.

Under the UK/Cyprus double tax treaty, most pension income is taxable solely in Cyprus. Until December 2024 this can include income paid in respect of government service, but only if you elect for this in writing.

Pension commencement lump sums are not taxable in Cyprus.

In Cyprus, capital gains tax is only payable on gains arising on the sale of real estate located in Cyprus – property outside Cyprus exempt. The rate is 20%.

Capital gains made on the sale of shares are generally not taxed in Cyprus.

Please refer to www.retiringtoeurope.com and www.blevinsfranks.com for the latest on how Brexit affects Britons in Europe.

Jason Porter is a Director of specialist expat financial advisers Blevins Franks, which has been rated Best Overall Adviser Firm in the ‘International Adviser’ magazine best practice awards. Jason is the co-author of the book ‘Retiring to Europe’.