Taxes and false wills may prove a drain in Spain

Spanish workers are the retiring kind. In fact, they are retiring at an ever increasing rate encouraged by their pension system which kicks in at a generous rate when they reach 50 and increases by only a small amount by the time they reach 65.

Up to this point they have probably paid higher taxes than UK citizens, if they have paid taxes at all, and that will be the first thing to hit anyone who retires to Spain with a view to staying "for ever".

The top rate of tax is 48% which applies at about £24,000. There is also an annual wealth tax that must be paid based on the value of all your assets. The tax applies on assets over about £50,000, which will mean that you pay tax on a sliding scale up to 2.5% on the value of your retirement home and savings assets over this amount.

The only benefit is that mortgage interest is also deductible from income tax, which encourages buyers to use a mortgage rather than buy outright.

Ana Wisdell, a tax consultant at Ernst & Young, says: "You find that many people who are horrified at seeing their capital taxed every year by a wealth tax and income from their savings taxed by income tax keep their money offshore in Gibraltar, Andorra or Jersey and Guernsey. They don't declare their assets or the income they get from it and this can cause problems."

Spanish law encourages citizens to inform on their neighbours and employers who enjoy a lifestyle beyond their means because they fail to pay tax. Employees paid cash might inform on their employer in order to qualify for national insurance.

Have a dispute with a care assistant and they might shop you under the "denuncia" laws to the tax authorities.

If you make a will and fail to declare assets you could be in the same boat, in effect denounced by your lawyer and face a prison sentence. Ms Wisdell says expats often avoid making a will for this reason, but can end up in even more trouble.

Spain has a system of "forced heirship" that says property belongs to married couples and the death of one partner initiates the division of half the estate along strict lines - a third to direct dependents shared evenly, a third to dependents shared by the direction of the will, and a third to anyone.

A way round this problem is to commission a will in the UK, which will override Spanish rules. But it cannot avoid the problems that follow making false declarations to the tax authorities.