If you’re planning to retire overseas, where you move matters – but when you move can be just as important. Many people focus on pensions, healthcare and lifestyle when retiring abroad, but overlook one crucial detail that can have a significant impact on their finances: the local tax year.
In countries like Spain, Italy France and Portugal, the tax year runs from 1 January to 31 December. If you become a tax resident partway through the year, careful timing could reduce the amount of tax you pay in your first year abroad. The savings can be in the thousands.
Here’s how understanding tax years can help you retire overseas more tax-efficiently.
Please note: This article is for general information only and does not constitute tax advice. Tax rules vary by country and individual circumstances, so you should seek professional advice before making any decisions.
Why timing matters when retiring overseas
When you retire abroad and live in a country for more than 183 days of the year, you are likely to become a tax resident in your new country. Once that happens, you’re typically taxed on your worldwide income, including pensions, rental income and investments.
However, tax systems don’t usually apply from the moment you land – they apply from the moment you become tax resident. That’s where timing becomes critical.
If you move too early in the year, or trigger tax residency unintentionally, you could end up paying a full year’s tax in your new country, even if you only lived there for part of the year.
Understanding tax years abroad
Different countries use different tax years. Some align with the calendar year, while others don’t. While the UK tax year runs from 5 April, calendar-year tax systems are more common in Europe.
Countries that use a 1 January – 31 December tax year include Spain, France, Portugal, Italy, Greece and Cyprus. In these countries, becoming tax resident even late in the year can still mean filing a tax return for that year and declaring worldwide income earned during the period of residency.
This creates both risk and opportunity, depending on how well you plan.
Spain: a clear example of tax-year timing
Spain is one of the most popular retirement destinations and a perfect example of why tax-year timing matters.
You are generally considered tax resident in Spain if:
- you spend more than 183 days in the country in a calendar year, or
- Spain becomes your main centre of economic or personal interests
Once tax resident, Spain taxes your worldwide income.
How retiring to Spain later in the year could reduce tax
Let’s look at a simplified example.
Example: Retiring to Spain mid-year vs late-year
Scenario 1: Move to Spain in March
- You spend over 183 days in Spain by year-end
- You become tax resident for that calendar year
- Spain may tax your worldwide income earned during the period of residency
Scenario 2: Move to Spain in October
- You do not exceed 183 days before 31 December
- You may not be considered tax resident until the following year
- Your first full Spanish tax year starts on 1 January
This timing can be especially valuable if you plan to take pension lump sums, restructure your retirement income or sell assets before becoming tax resident.
Tax-year planning and pension income
For many retirees, pension income is the largest source of retirement income – and it’s often taxable in the country where you’re resident.
Understanding tax years allows you to delay drawing income until you are in a more favourable tax year. You may also take your tax-free pension lump sum before becoming tax resident and avoid overlapping tax liabilities across countries.
This is particularly relevant for retirees moving from countries with different tax years, such as the UK, where the tax year runs from 6 April to 5 April.
Don’t forget currency planning
When you retire overseas – maybe living in a new country for the first time – it can take some adjustment. The last thing you need is uncertainty over how much you have to live on. But if your pension or assets are in one currency but your living costs are in another, exchange rate movements will impact your income.
Planning your retirement timeline allows you to schedule large transfers more strategically and set up regular payments at more favourable rates. Speak to Smart Currency about organising regular payments.
Common mistakes retirees make with tax timing
Some of the most common (and costly) errors include:
- assuming tax residency starts when you register locally
- unintentionally exceeding the 183-day threshold
- drawing pension income too early
- ignoring how different tax years interact
- failing to plan the transition year properly
Once tax residency is triggered, it’s often too late to undo the consequences.
While Spain is a useful example, every country has its own residency rules, thresholds and exemptions. Some countries apply split-year treatment, different residency tests or special regimes for new residents.
Your personal situation – including income sources, nationality and assets – also plays a major role.
This is why professional guidance is essential before setting a retirement date.
The best time to retire overseas is rarely accidental
Retiring overseas isn’t just about choosing a destination – it’s about choosing the right moment.
By understanding the local tax year, residency thresholds, how pension income is taxed and how currency exposure fits into the picture, you should start your retirement abroad on stronger financial footing.
Planning to retire overseas?
If you’re considering retiring abroad – whether to Spain or elsewhere – early planning around tax years, income timing and currency exposure can make a meaningful difference to your long-term retirement income.
Please note: This article is for general information only and does not constitute tax advice. Tax rules vary by country and individual circumstances, so you should seek professional advice before making any decisions.
