Guidance on a Short-Term Stay in Spain
February 20th, 2006
Despite paying into Spain’s social security scheme Lyndsey Gilmour plans to retire in the UK, so she is seeking advice on her state pension entitlement.
Ms Gilmour, 37, originally from Edinburgh, Scotland, is working as an English teacher in Barcelona, Spain, after taking voluntary redundancy from her job in marketing for Royal Mail. She said: “I came to Barcelona in September 2004 and am unsure how long I will stay, but probably for the next three years.
“I am paying tax and National Insurance in Spain but want to know what I should be doing about my National Insurance contributions (Nics) in the UK.
“Should I continue to pay them and if so, at what rate, or do my contributions in Spain count towards my state pension when I move back?”
Last summer, Ms Gilmour returned to the UK for a few months and asked The Pension Service for advice. She was told she could pay outstanding Nics for the tax year 2004 to 2005 at Class 2, totalling around 70 GBP’s.
She said: “I have until April to decide whether to do this or not, but I am unsure why I qualify for Class 2 contributions or what I should be doing for this year.”
Ms Gilmour bought a two bedroom flat in Edinburgh in 2000 for 75,000 GBP’s, which is now worth 145,000 GBP’s. She said: “I rent this out for 430 GBP a month, putting any extra money aside after paying my mortgage in case of emergency. For example, if the flat is unoccupied for a while.”
Vital Statistics
Name: Lyndsey Gilmour
Age: 37
Location: Barcelona, Spain
Occuption: English teacher
Salary: 1,000 EURO’s a month after tax, and rental income.
Bank Accounts: Caja de Ingenieros Current Account; 5,000 GBP’s in First Direct Current Account.
Savings Accounts: 2,000 GBP’s in ING Direct Savings Account; 17,000 GBP’s in Marks & Spencers cash ISA; 43 GBP’s a month into with profits endowment with Standard Life with 11 years to run; 3,000 GBP’s in Legal & General maxi ISA.
Liabilities: 25 year 42,000 GBP’s mortgage with Yorkshire Building Society, part interest only, part repayment.
Assets: Two bedroom flat in Edinburgh bought in 2000 for 75,000 GBP’s, now worth 145,000 GBP’s.
Pension: 20 years’ contributions to the Royal Mail final salary scheme.
Insurance: None
What the experts say
Paying voluntary Nics while in Spain is a worthwhile consideration if Ms Gilmour wishes to draw a UK state pension, agreed the advisers.
National Insurance Contributions: On returning to the UK, Ms Gilmour’s payments into Spain’s social security scheme will not be transferable, said James Dalby of independent financial adviser Bates Investments. He added: “However, she may be able to claim a pension from the Spanish state scheme based upon its rules, although the minimum contribution period for benefits to be accrued is 15 years.
“So, depending on how long Ms Gilmour plans to be in Spain, she might consider making voluntary Nics to keep her record up in the UK.”
Bill Blevins of IFA Blevins Franks, said: “As it is, she already has enough UK contributions to be entitled to at least a partial UK state pension, and any additional voluntary Class 2 or 3 contributions will add to those years for UK purposes.
“In the short term, especially as she is not sure of her plans and as she may return to the UK after a few years, it makes sense to keep her entitlement topped up.”
Class 2 contributions, which she is currently able to make as she is working overseas, protect her entitlement to UK social security benefits as well as the state pension.
Class 3 contributions only add towards state pension entitlement, added Mr Blevins, but can be made whether living overseas or not. He said: “Her entitlement to pay Class 2 contributions should continue on the same basis, and if she stops working overseas she can still pay Class 3 contributions.”
Class 3 contributions cost 7.35 GBP’s a week. Class 2 contributions are 2.10 GBP’s as they were frozen in April 2000. If you can pay either Class 2 or Class 3 NI contributions, you can change from one to the other as you choose by filling in form CF83.
More information is available for HM Revenue & Customs (HMRC) at www.hmrc.gov.uk, or by calling +44191 225 3540 from outside the UK, and 0845 9154811 in the UK.
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