Spain continues to be the number one overseas destination for Britons planning a retirement abroad; after all, it is a nation so rich in terms of its charm and appeal and it is so accessible that it’s easy to see why 75,000 of all those claiming their UK state pensions abroad are doing so from Spain, and why over a quarter of all overseas holiday homes owned by Brits are in Spain.
By 2050 a large percentage of the estimated 3.3 million Britons who will have retired abroad according to the Institute of Public Policy Research will have chosen Spain for their new home in the sun - and so if you’re planning your escape to Spain’s sunny skies you are not alone and just for you, here’s ShelterOffshore’s critical advice for all those retiring to Spain.
It’s fair to say that the dream of living abroad is one that can cloud judgement, and when it comes to financial matters unclouded or clouded judgement can be the make or break between you retiring successfully to Spain or you having to return ‘home’ to the UK when you fall on tough times. So, you really have to get as honest and open an overview of your financial status and make appropriate plans before you move to Spain if you are to survive financially.
What’s more, if you get the financial aspects of your move to Spain sorted out well in advance of your relocation, you stand the best chance of not only having a successful move but of having a happy and stress-free move as well.
So, what critical advice can we impart?
Well, understand your own personal financial situation, understand all about your pension rights and obligations, consider your taxation status and liability - and don’t forget currency fluctuation risks…
If you are fortunate enough to be in a position to claim a state and a personal pension because you have contributed National Insurance payments and made personal payments into a private pension scheme as well, you’ll be glad to know that you can claim both pensions when you retire to Spain. Your country of residence in this instance does not affect your pension.
In addition to this, by retiring to Spain your UK state pension continues to rise in line with inflation and is not ‘frozen.’
To receive your pension payments it is worth finding out about international bank accounts into which you can receive the payment in the UK, and from which you can draw down the cash without excessive charges being applied once you’re living in Spain. Your relocation to Spain may affect additional pension and social security benefits such as the government’s pension credits for example, and you will need to speak to the Department for Work and Pensions to get an honest, accurate and up to date assessment of your personal benefit situation before you make the move abroad so that you know how much money you will get into your bank account each month.
Even if you claim no additional benefits you will need to let the Department for Work and Pensions as well as your local Social Security Office and the National Insurance Contributions Office know about your retirement to Spain so that if any queries arise relating to your state pension they know where to contact you.
When it comes to taxation, you should determine whether you will still have a UK tax liability or a Spanish tax liability and if you want to take a lump sum from your UK pension pot tax free as you are entitled to do so in the UK, it could just be that this lump sum is taxed if you’ve already moved to Spain when you claim it. Speak to a trusted financial adviser or accountant about you own personal situation before you act.
Finally, if your pension is paid to you in pounds sterling but you draw it out of a hole in the wall in Spain you will receive euros – and the euro/pound exchange rate is forever fluctuating so some months you could be losing out financially through currency conversion of your pension income. Consider speaking to a specialist currency company about how you can secure against these negative fluctuations.
