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Thursday 11 February 2010

QROPS Spain

Brit expats love the better weather and a lower cost of living make Spain the most popular destination for British expats who retire abroad – and it can also provide a tax haven for the well-advised.

Most British pensions can be paid into Spanish bank accounts without deduction of British taxes after you have obtained a certificate to show that you are resident in Spain and paying tax there. This is called a certificado de residencia fiscal NEN – Espana Convenio.

However, British Government service pensions – including civil service and local authority schemes – are important exceptions to that rule; UK tax will always be payable, even after you are resident in Spain. This does not affect NHS pensions and may not include teachers, police and fire brigade pensions; once again, specialist advisers can provide guidance relevant to your individual needs.

International money transfers As a general rule, Spanish fiscal law provides a personal allowance of between 2,600 euro and 4,000 euro before income tax is applied at rates varying between 24 per cent and 43 per cent on income above the allowance. However, where a personal pension is used to buy a whole of life annuity – known as a renta vitalicia – then much lower rates of tax may apply.

Unfortunately, unless you are in QROPS, the annuity is limited to sterling; and so you are at risk of it losing its local purchasing power in future if the pound continues to lose value compared to the euro.

For example, someone aged between 60 and 65 years old who received 25,000 euro a year from an annuity might only pay 18 per cent tax on 24 per cent of the income.

That could produce a tax bill of just 1,080 euro or an effective tax rate of just 4.32 per cent. Once again, it is worth repeating that it is vital to seek fully authorised pensions advice to steer clear of the potential pitfalls and make the most of the legal opportunities overseas.

Other factors that might be considered include tax-efficient trusts and new opportunities created by the 100 per cent exemption of wealth tax in Spain since the start of 2008. However, it is important to note that wealth tax has not been abolished; the Spanish government could recommence these charges simply by reducing or eliminating the new exemption.
By Ian Cowie
http://www.telegraph.co.uk/finance/personalfinance/offshorefinance/7189169/QROPS-and-pensions-Spain.html

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