European law states that your car must be registered with Spanish plates within 6 months of your arrival in Spain. After that period it must have Spanish registration or it must leave the country for a continuous 6 month period. The reason can best be explained by reversing the situation. Imagine that you are driving your completely legal UK registered car in the UK and you are involved in a minor accident with a foreign registered car which has been in the UK for over a year but still has foreign plates on it. By definition it will not have a current certificate of road worthiness (MOT) from its own country which will automatically render its insurance null and void.
Question. Where does that leave you and the damage to your car?
Now reverse the above but this time it's you who are at fault.
One of the myths we hear a lot is "I'll tell them I'm here on holiday" "I'll take the car back to the UK and get it MOT'd and Taxed and then bring it back.
Wrong! whether you are a resident or not you can only keep a car here on UK plates for up to six months. Then it has to go back to the UK for a further full, continuous six months or be re-registered. You might scrape through a routine roadside stop with that story but, in the event of something more serious, you would have to prove that the car was only here for six months of the year in a court of law and that might be a little difficult when you've been parking it outside the local cop shop for the last three years !
In the unfortunate event of you being involved in a serious traffic incident you would probably be asked by your insurance company to provide proof of continuous residence in the UK for a full six month period within the twelve months up until the date of your accident. This would include credit card receipts, debit card receipts, petrol receipts, rent/ mortgage payments etc. They would also wish to see your passport stamped at the correct dates with entry and exit stamps.
There have been some recent cases of cars being impounded in Benelmadena and Torrevieja. The most recent happened in February 2009. The reason being given by the Policia Local was that they had exceeded the six month time period and had still not been re-registered with Spanish national plates.
There have also been cases of cars being impounded in Barcelona and Tarragona. The reason given in all three cases was that the six month time period had been exceeded.
The easiest way is to re-register your car and buy Spanish insurance.
It really is a simple as that.
If you are still in any doubt as to the legality of your car then simply ask your insurance company for a letter stating that they are aware that you are a permanent resident in Spain but that you are still driving a UK registered car with no Tax or MOT but they are quite happy to carry on insuring you on a fully comprehensive basis.
Once you have that letter, keep it with you at all times! (good luck, we've not seen one yet)