Thinking about moving to Spain - impact on SIPP

Sunnylifeover50plan

Afternoon - I have a SIPP set-up in the UK which I plan to start drawing from at the age of 55 - current age 50.

My wife and I are considering a life style change by; moving to Spain, seeking residency and buying a house. We have adequate funds from savings to fund ourselves until we draw down on our SIPP's.

My UK IFA doesn't provide advice covering Spanish taxation but from what I read Spain will not permit a 25% tax free drawdown at 55 and instead will tax my drawdowns as income at their published rates.

Question is: a/ Are there any known legal tax avoidance strategies available off of the shelf to minimize the amount of tax my drawdowns are likely to attract b/ Are there any specific products or strategies the Spanish use to reduce their pension taxation liabilities?

My pot size is around £560k at this time. I am quite happy to engage with a Spanish tax advisor in due course but for here and now this is an attempt to see if there are any footprints in the snow I can think about following.

Thanks in advance.

MEM62

A little off-topic but, before you buy a house in Spain look at what you would achieve in rent for yours and the average cost of rent in the area of Spain that you looking to live in. Once you realise that the rents in Spain are cheaper, thus giving you a contribution to your living costs it may change you mind on (bridge burning?) selling.

bostonerimus

Read the UK Spanish Double Tax Treaty. Your UK SIPP withdrawals will be taxed by Spain and so you need a Spanish tax expert to help you. FYI it is generally not possible (or if it is it's expensive, complicated and best avoided eg QROPS) to transfer pensions across borders.

Sunnylifeover50plan

bostonerimus wrote: »

Read the UK Spanish Double Tax Treaty. Your UK SIPP withdrawals will be taxed by Spain and so you need a Spanish tax expert to help you. FYI it is generally not possible (or if it is it's expensive, complicated and best avoided eg QROPS) to transfer pensions across borders.

Thanks - it does feel as if I will simply be taxed on my draw downs as income by the Spanish give I'd be a Spanish tax resident but will seek further UK/ Spanish advice.

[Deleted User]

Have a look at my post here
https://forums.moneysavingexpert.com/discussion/comment/76158132#Comment_76158132
Especially the bit about getting your finances in order, the Spanish tax year BEFORE you become resident
I am playing it quite clean as I intend to go in around 2 years time - I have an aversion to trying to avoid tax just in case I get hammered in future years. I even volunteered for IR35 for years even though I might have been just been outside, but I considered it a moral thing to do anyway
Anyway back to the OP question
I would wait 5 years unfortunately if I were you - rent a holiday home, do a long term let but do not spend more than 183 days in Spain per year until you are 55 (however be very careful in your last year, as those days will count towards your tax residency in Spain even though you haven't moved there)
Even if we crash out with a no deal - you should have enough money to have a non lucrative Visa and be treated like an American, for example (in the worst possible case - I think you need to show EUR32k income/savings, never sure which per couple)
I can not offer advice but tell you what I am planning
Taking the 25% TFLS and investing in ISAs etc in the UK before I become tax resident in Spain
I can then take dividend income from the ISAs which will be charged at a lower tax rate than the SIPP pension income and mix and match the two to get my monthly income
Use this calculator to get an idea of how much you will pay, https://www.icalculator.info/spain.html
Open up the advanced section
Also play around with taxing you and your partner separately or you using the married couples allowance yourself. You may find that if you distribute the TFLS into your partners SIPP and her ISAs you may end up getting a better tax deal as you will be both have the 2000 EUR expense deduction.
Don't forget you can also contribute to your SIPP and get tax relief for the next 5 years (the old £2880 + 720 trick as mentioned on this forum) EACH. But I haven't done the calculations as to whether this works out better for you or not as you will have paid Spanish tax on your income before you reinvest (I cannot find out if these payments are taxable deductions on a Spanish Tax Return, I doubt it as you will be getting two bites of the cherry).
I have mentioned QROPS and other things in my linked post. Also pay a lot of attention to the Spanish treatment of house sales, both abroad and in Spain for CGT purposes (there is no main residency exemption in Spain unless you are over 65 and certain conditions)
I for one will be selling in the UK and moving into rented in the UK before I become Spanish Tax Resident for the year. ie in November 2021, move to Spain in Spring 2022 (thus become tax resident), I can then use the house proceeds to invest in a ISA and other UK investments. I will then rent and may buy using the investments. I will be charged Spanish CGT on any increase on them (with no allowance). Or I might rent for good and keep the UK investments bubbling over in order to come back to the UK should I ever need to (far less hassle than leaving a house in the UK to be rented and being an absentee landlord).
We may end up 5 years in Spain, then 5 in Cyprus, 5 in France etc.. Thats why I am trying to be flexible in my retirement finances.
Hope this all helps, spent the past two years digging around , reading posts and the Blevins Franks guides and various web sites. Could be wrong, but I don't; think I am on the wrong track with my thinking.

nigelbb

Deleted_User wrote: »

We may end up 5 years in Spain, then 5 in Cyprus, 5 in France etc.. Thats why I am trying to be flexible in my retirement finances.

You might want to consider moving to France first as the income tax when you drawdown a pension is only 7.5% provided you take the whole pot at once.

Sunnylifeover50plan

Thanks

For us we are pretty determined to make it happen now or at least within the next 6 months. I note your comment about CGT on our UK house sale. Despite me not having access to my pot for 4.5 years my wife's pot can be accessed from late next year. It's smaller than mine but has around £105k at today's prices.

I think we will just need to get used to the idea of there not being an opportunity for a large initial tax free drawdown and instead drip feed ourselves. This isn't perhaps as bad as it sounds given it preserves more of the pot for returns.

You are also right in terms of "at worst" we will need to demonstrate funds or annual income equivalent to just over EUR 32k, and this might be periodically reviewed every 1 or 2 years.

At which point do you intend on opening up your own analysis to the like of Blevins Franks?

EdGasketTheSecond

Well be careful. I know a couple that bought a new house in Spain and lost all their life savings on it. Turned out there was no planning for the house, builder in league with local mayor, assets transferred to wife so no point sueing. They lost the lot and now have no home in Spain or here and no money either.


Also 5 out of every 6 houses on the estate ram-raided when not occupied. I could say who by but then my post would probably get blocked so you'll have to guess (but they begin with R).

Sunnylifeover50plan

EdGasketTheSecond wrote: »

Well be careful. I know a couple that bought a new house in Spain and lost all their life savings on it. Turned out there was no planning for the house, builder in league with local mayor, assets transferred to wife so no point sueing. They lost the lot and now have no home in Spain or here and no money either.


Also 5 out of every 6 houses on the estate ram-raided when not occupied. I could say who by but then my post would probably get blocked so you'll have to guess (but they begin with R).

I wonder which of the two of us will be in Spain first

[Deleted User]

nigelbb wrote: »

You might want to consider moving to France first as the income tax when you drawdown a pension is only 7.5% provided you take the whole pot at once.

Really? Any chance of a link (in English)
I really can't understand the French taxation (even with the Blevins Franks guides) and PUMA - I give up on that. But I noted your earlier replies on it

nigelbb

Deleted_User wrote: »

Really? Any chance of a link (in English)
I really can't understand the French taxation (even with the Blevins Franks guides) and PUMA - I give up on that. But I noted your earlier replies on it

One of the Blevins Franks guides mentions the 7.5% tax on pension pots. TBH with potentially so much money riding on liquidation of a large pension pot it would be worthwhile to pay someone like Blevins Franks to ensure everything was done correctly.