And so it goes on. The extension to Brexit means that we will have to wait a little longer to know the final outcome. However, we can be specific about how Brexit affects your financial situation if you are British national living in Spain or a non-British person who has worked in Britain before moving to Spain.
U.K. State Pension
Both Spanish and U.K. pensions will be paid post Brexit. U.K. and Spanish state pensions are increased each year by the cost of living. If you live in Spain and receive either pension today, pre Brexit, your pension is increased. After Brexit increases will only continue if there is an agreement that both countries will give the same treatment to their pensioners living in the other country. There are some promising noises but there is no agreement as yet; in part because Brexit has not yet happened. Here is the statement from the Spanish government website on state pensions:
Will my pensions be paid after the U.K. leaves the EU?
With an agreement:
Yes, during the transition period pensions will continue to be paid under the exportability principle provided for by the European regulations.
Without an agreement:
Spain and the United Kingdom will apply their national legislation. The Spanish government's contingency measures include the payment of pensions recognized by the Spanish authorities in the recipient's place of residence.
The British Government website states:
“The U.K. leaving the EU will not affect entitlement to continue receiving the U.K. State Pension if you live in the EU, and we are committed to uprate across the EU in 2019 to 2020. We would wish to continue uprating pensions beyond that but would take decisions in light of whether, as we would hope and expect, reciprocal arrangements with the EU are in place.”
Both governments have issued further statements with reassurance about pension increases which we hope will be recognized post Brexit.
Other Pensions
Your company and personal pensions that are in payment are unlikely to be affected. However, taking benefits for the first time from a U.K. pension (or indeed an insurance policy) may be forbidden under EU law after Brexit. This is a work in progress between the EU and the U.K. to find a work-around solution. As it could also affect EU citizens living in the U.K. who will be forbidden to take their European pensions it is hoped a solution can be found. The Association of British Insurers is working to make sure people can get their pensions and have proposed solutions to the respective governments.
Currency
Currency can have a big impact on the lives of British people living in Spain, especially if they rely on income from the U.K. that has to be converted into euros.
The exchange rate between any two currencies is often difficult to predict even without an event such as Brexit. Broadly, it is based on the amount of trade between currency blocks e.g. GBP and EUR, the amount of foreign investment into each area and also the rates of interest in that country. It is feared that Britain will be a less attractive place to invest and the amount of trade will fall thereby meaning sterling will weaken. The pound, in this example, would therefore buy fewer euros; £1 = €1.10 instead of £1 = €1.16 (current rate).
With so much noise about Brexit at the moment, I would like to introduce a “fact check” or “reality check.” The biggest movements in the pound vs. euro rate from January 1, 1999 and today are as follows:
Low Point £1 = €1.02 - December 29, 2008
High Point £1 = €1.75 - May 3, 2000
These figures come from the European Central Bank. Both these dates are outside the period of Brexit. The Lehman Brothers/Financial Crisis start in 2008 and the top of the boom in tech shares in 2000 were more important to currency markets than Brexit. This is not to say that Brexit will not have an impact. It will, but it might not be what some of the headlines are predicting.
Another point is that the exchange rate moves constantly. Even if the rate were to fall substantially after Brexit there is every likelihood that with time, the exchange rate would change. A simple example explains why. If the pound weakens property in the U.K. becomes “cheaper” for a foreign investor. Someone with euros has to use fewer euros to buy the property. So the foreign buyers start to buy houses, Scottish estates, factories, warehouses, etc. This is inward investment and this then starts to push the pound value back up. Admittedly, this is a very simple example. However, it is worthwhile noting that over the period from January 1, 1999 to March 12, 2019 the average exchange rate, again from the ECB has been £1 = €1.34!
If you have a transaction due and you feel the rate is favorable to you, it is possible to fix that rate until you are ready to make the exchange. You may wish to consult a financial adviser to talk you through how to do this fixing of the rate.
Tax
Spanish Taxes
As Barcelona Autonomous Community (AC) residents we are subject to Spanish and Catalan rates of tax. Brexit will not change that position. However, one area where we did have concern was with Inheritance Tax in Spain. However, a Spanish Court has ruled that even non Europeans who receive an inheritance whilst living in Spain will get the AC rules for calculating the tax. This is very important as the AC rules are better than the rule that used to apply to non Europeans. The court case was brought independently of Brexit by Americans and so did not come from Brexit negotiations. This gives the ruling much more authority and provides certainty that we will get the better rules even after Brexit .
Beckham Rule
The Beckham Rule is a lower tax regime to attract people to Spain for work. There will not be any changes to the Beckham rule (Impatriate Tax Regime) because of Brexit. It is available to people from around the World. People moving from the U.K. to Spain will still be able to benefit from the lower rate of taxation for five full tax years.
Double Taxation Agreements
Double taxation agreements (DTA) are agreements negotiated directly between two countries. The agreements mean that an individual will not be taxed twice, once in each country, on the same profit or gain. Britain and Spain have a solid DTA. There is no element of European legislation that is included in this DTA. There will be no change to the DTA.
Investments
If you have savings and investments and some of this is in U.K. investments it may be necessary to change the U.K. based funds into funds that are based in Europe. However, you can “Brexit Proof” you investments as certain large U.K. financial institutions have products especially for Spain via their Dublin companies. These products are already Spanish compliant, do not need reporting on Modelo 720 and are tax efficient here in Spain. Perhaps most importantly, they hold a wide range of assets in many different countries giving you diversity which will help give you protection from the effects of Brexit.
Further Information
Both the Spanish and U.K. governments have websites that provide information on residency and medical care which you may also find useful. These are:
Spanish government (In English) - Prepared for the Brexit
British government - Guidance on Brexit
U.K. Nationals Living in the E.U. Essential Information
Barry Davys is a partner with The Spectrum IFA Group. He lives in Barcelona and provides financial planning specifically for international people who live in Catalonia using his knowledge of Catalan, Spanish and UK tax. The advice is given in English. Business owners and people approaching retirement find his guidance particularly useful. You can read more articles by Barry here.