Living in Spain

Mortgages, Pension & Health Care Issues

 

Mortgages (Hipotecas)

In general it is better to try and secure a mortgage through either a Spanish lender or a UK lender with a Spanish subsidiary or branch (surcusale). If it can be avoided, one should not borrow against a UK property since apart from being denied various tax reliefs (particularly in respect to rental income), the loan will be in Sterling (with obvious currency fluctuation issues) and interest rates are likely to be higher. Apart from the above it is important to take account of some of the key differences between UK/Irish mortgages and their Spanish counterparts:

Mortgage Periods: The repayment periods are generally for 15 years or less.

Mortgage Type: Spain does not have the same array of sophisticated financial products that exist in the UK or Ireland. In fact, the vast majority of mortgages are Fixed Interest and Capital Repayment over the agreed mortgage period.

Mortgagee Ages: A Mortgagee must generally not be more than 70 years of age at the time of the final mortgage payment.

Penalties: Early repayment of a mortgage will generally result in heavy fines and/or penalties.

Loan to Income Ratio: Generally mortgage repayments cannot constitute more than one-third of a person's monthly disposable income.

Maximum Borrowing to Value Ratios: Few Spanish banks will lend more than 75% of the value of a given property. In many cases, the ratio is 66% or less.

 

Pensions

The UK/Spanish Tax Treaty of 1975 avoids Spanish tax exposure in only a few limited cases. In most instances, pensions received in Spain by a Spanish tax resident will be subject to Spanish income tax even where such income would be deemed tax free in the UK. It is also recommended that pension advice is sought before taking up permanent residence in Spain especially if UK tax free lump sums are about to be received, as such sums received before moving to Spain would remain outside of the Spanish tax net.

Civil Service Pensions covered under the UK/Spanish Tax Treaty: Individuals who have worked within the British civil service are not subject to Spanish income taxes. However, it should be noted that people who worked for the NHS are not covered under the Treaty provisions and are subject to Spanish taxes whether or not tax has already been paid in the UK.

UK State Pensions: This is not covered under the Tax Treaty and hence will be taxable in Spain even if tax free in the UK.

Private Pensions: Private pensions received in Spain by fiscal residents are taxable in Spain. Notwithstanding this, some purchased annuities benefit from tax exemptions of up to 80% on the Spanish received lump sum. For this reason, it is always recommended that the structure of your pension is carefully analysed by a qualified expert BEFORE moving to Spain.

Avoiding Double Taxation: United Kingdom/Spain Double Taxation Convention (SI 1976 Number 1919) - As has been stated, in most instances pensions received in Spain will be subject to Spanish taxes. To avoid the situation of being taxed on the same amount in both the UK and Spain it is necessary to complete a FD9 Form for an Application for the relief at source from United Kingdom Income Tax and Claim to repayment of United Kingdom Income Tax - This form is for use by an individual resident of Spain receiving pensions, purchased annuities, interest or royalties arising in the UK .

When completing a FD9 Form, you are consenting to the Spanish Revenue ( Delegación de Hacienda del domicilio fiscal ) certifying to the UK Inland Revenue that you are resident in Spain for the purposes of Spanish tax. The exact procedure is that you would download a Pdf File form the Inland Revenue Website, complete the FD9 Form and send it to the Delegación de Hacienda del domicilio fiscal whereupon they would stamp it and return it to the Inland Revenue.

Once received, the Inland Revenue would allow sums to be forwarded to Spain free of UK income tax.

At the time of writing the URL is: http://www.inlandrevenue.gov.uk/cnr/spain-individual.pdf

Contact Details:

UK Inland Revenue - Centre for Non-Residents,
Fitz Roy House,
PO Box 46,
Nottingham,
NG2 1BD

Or phone the Centre for Non-Residents during UK office hours:
+ 44 151 210 2222 if calling from outside the UK
0845 070 0040 if calling from the UK

 

Health Care

Spain has an excellent Health System far superior to that of either the UK or Ireland. The costs of medical care and expenses can be recovered by those EU and European Economic Area citizens/permanent residents who make claims under the EU E111, E106, E112 and E121 Forms. In synopsis, the E111 Form is meant for temporary visitors visiting Spain for no more than 90 days, requiring emergency medical care whilst on holiday.

The other Forms are meant for permanent working or retired residents of Spain and other European Union/European Economic Area countries. In Spain the vast majority of able bodied non-retired patients are expected to contribute around 25% to the total cost of their medical care.

Inland Revenue
National Insurance Contributions Office
Centre for Non Residents
Longbenton
Newcastle upon Tyne
NE98 1ZZ

Tel: 0191 225 4811

Form E111 - Temporary Visitors: This allows temporary visitors to Spain to have emergency treatment provided to them on the same basis as a resident of Spain . It should however, be noted that the cost of repatriation to the UK or Ireland is not covered under the legislation, and is the responsibility of the individual (or their insurance company). E111 Forms can be obtained from most Post Offices - in the UK further information can be garnered from the:

Form 121 - Retirees and Non-Retirees of Pensionable Age and those with Registered Disabilities: This allows EU and European Economic Area citizens who have reached state pension age, women over 60 and men over 65; those with long-term disability pension; and those working and paying national insurance contributions to claim Free Medical Care in Spain provided your UK or Irish National Insurance contributions are up-to-date. 

Form 106 - For those below Pensionable Age who have moved permanently to Spain: This allows temporary cover in Spain for up to 2 ½ years depending on the state of your national insurance contributions in the UK or Ireland . This scheme does not provide free medical care but does allow you to be treated in the same way as an indigenous Spaniard. After the transitional period, it is expected that those working in Spain would start to pay Spanish national insurance contributions. For those having taken early retirement it might be wise to continue to paying UK or Irish NI contributions.

Forms 121 and 106 can be obtained from the Inland Revenue or Pension Service:

The Pension Service,
Tyneview Park,
Medical Benefits,
Newcastle upon Tyne,
NE98 1BA

Telephone: 0191 218 7547
Fax: 0191 218 7376
Email: tvp.customer_care@dwp.gsi.gov.uk

A much more in-depth explanation - including examples and diagrams - is given in the new book "How to Buy Spanish Property", available now for just £4.99