Retiring to Spain

To be considered a resident of Spain you need to spend 183 days in the country or a total of 280 days over a two-year basis.

After becoming a Spanish resident, you’ll need to complete a Declaration of Residence outside the Republic of Ireland (EO0194O) form with the Irish revenue.

Changes to the residency regulations

Although not new changes, they were implemented in 2012, you should be aware that when you do apply for residency, the Spanish authorities will ask you to provide:

• evidence of sufficient financial means to support themselves (and dependants).
• evidence of private or public healthcare insurance

Tax in Spain

The Spanish tax system is fairly similar to the Irish tax system that you will be familiar with but there are differences in how certain assets are taxed and at what rates depending on where you live in Spain.

Spain is divided into 17 different autonomous regions, and each takes the tax rates, reliefs, and allowances laid down at state level, and is allowed to vary them (within reason). It is therefore important to establish which of the autonomous regions you will be resident in, to know what set of tax rates, reliefs and allowances will apply to you.

The two main sources of income in Spain are;

Transferring your Irish pension to live in Spain

Spanish residents with Irish pensions or occupational pension income are taxable in Spain and not in Ireland, under the terms of the Ireland-Spain Double Taxation Treaty. This varies depending on your pension terms.

ARF’s, AMRF’s and Personal Retirement Bonds will likely be considered emoluments or salary income as they are not recognised as pension structures within Spain. This means they’ll be taxed at normal income tax rules on drawdown and also potentially have 25% tax by Irish revenue. You will then need to claim back any excess tax you have paid from the Spanish Hacienda (Revenue) which is not an optimum situation.

Defined Benefit (DB) and annuity based pension income can be tax efficient in Spain but selecting the right provider is crucial to avoid the many pitfalls of drawing your pension monthly income. Annuities are exceptionally bad value these days also so there is a fine balance between the type of pension and the tax and IHT planning.

For more info on transferring an Irish pension abroad see this page.

Bear in mind, the tax you pay on your pension income can depend on a lot of factors including

• The tax rules of the Spanish state
• Your pension income
• Your total assets as dictated by the Modelo 720 rules

Rental income from an Irish property

Besides your pension, property income may form a large part of your retirement plans.

You must continue to report rental income from Irish properties on an Irish tax return every year as the income remains taxable in Ireland. You’ll want to try and offset the Irish tax against any Spanish tax liability under the Double Tax Agreement between the 2 countries. Speak to an Imperius Wealth expert if you are unsure how to do this.

When do you start planning?

As with any sort of retirement planning, the earlier you begin the process, the better the outcome. When it comes to retiring to Spain, we recommend 12-18 months before moving.

The first points of your action plan? Speaking with your spouse/close family and finding a knowledgeable, and experienced cross-border Financial Adviser.

There’s also a free ebook at the bottom of this page that covers the move in a lot more detail. We hope it is essential reading.

Modelo 720

All residents of Spain are required by law to declare all assets they hold outside Spain worth more than €50,000 regardless of where you were born, previously resided or hold the assets themselves. The reporting regime and documentation to report this is known as Modelo 720.

Modelo 720 divides assets into three groups:

• Overseas property – Residential or Commercial
• Deposit accounts – held in overseas financial entities
• Financial assets (bonds, investments, pensions, insurances) outside of Spain

The Spanish tax authorities frequently give severe fines for any non- disclosure or incomplete reporting of foreign assets which can sometimes be as high as 150% of the value of the undeclared assets.

These can be retrospectively imposed for prior incidents of non-disclosure so it’s incredibly important to ensure full tax compliance. The OECD’s Common Reporting Standards regime has started reporting these from at least 2017 onwards.

Financial or Physical assets greater than €50,000 at 31 December each year (the official reporting date) is required to be reported. Future Modelo 720 reporting is only required when the reported asset increases by €20,000 on the previous stated value.

Needles to say Spain offers a fantastic low cost destination for Irish retirees who are looking to enjoy the lifestyle that Spain gives. It’s important to plan for this retirement though if you wish to avoid the gaze of Spanish revenue. There are reasonably simple steps you can take to avoid any unnecessary tax complications but you should really speak with someone in Imperius Wealth first to understand your options.

Please speak with one of our Chartered Financial Planners or Certified Financial Planners CFP® who can quickly and clearly guide you in the right direction.