Financial Advice for Expats in Spain 

A favourable climate, exciting food and wine scene and a relatively low cost of living makes Spain one of the most attractive expat destinations. Spain is particularly popular with British expats, many of whom until recently have been 'flying under the radar'. Since Brexit however, being forced to apply for residency has meant getting investments and tax affairs in order has become a priority.

When it comes to managing pensions and investments, there are considerable differences between Spain and the UK and how you are taxed. So it is vital to structure your wealth by taking qualified advice, understand ways to minimise your tax liabilities and avoid penalties which in severe cases, could include criminal charges.

Tax in Spain for expats

Many countries have signed double taxation agreements (DTT/DTA) with Spain, including the UK to prevent British expats being taxed twice. You are considered a tax resident if you spend more than 183 days in Spain, your family dependents live there and/or your professional activities are conducted there. Tax is paid beyond personal allowances and after deductions for social security, pension contributions and business costs. 

You are required to submit tax returns and pay tax on your local income as well as your worldwide income if:

  • you own a business or operate on a self-employed basis

  • you receive an annual income from savings or from a capital gain on investments in excess of €1,600 a year

  • you receive annual property rental income in excess of €1,000

  • you are declaring Spain as your tax residency for the first time

  • you possess overseas assets valued over €50,000 (declared under Modelo 720)

  • you earn more than €22,000 per annum

Where you live affects the tax you pay. Whilst state taxes are standardised, taxation is complicated further by each of Spain's 17 autonomous regions applying their own rates which are due in addition to state taxes. Income tax is progressive and ranges (in 2022) from 19% up to 47% for annual earnings of more than €300,000. 

Tax is also also levied on income derived from savings. ranging from 19% up to 26% for earnings exceeding  €200,000 per annum. ​

expat financial advice spain

The myriad of taxes and reporting them correctly in Spain makes taking tax advice essential. It is also highlights the importance of using locally compliant investment solutions to minimise your liabilities and reporting responsibilities. 

Tax-efficient investing in Spain

Offshore life company bonds have seen sold prolifically over the years, often because of high rewards on offer to advisors at the expense of investors. There are however, simple ways to make bonds extremely client friendly by removing fixed charging structures and creating a bespoke fee arrangement to increase flexibility and lower fees.

In our opinion, there are only specific circumstances in which insurance bonds should be used, which include being expat resident of France, Italy, Portugal and Spain, all of which have locally compliant products available. 

In Spain, compliant products help minimise tax on savings and report taxes automatically. Without locally compliant investments, annual reporting is required by you and income tax is levied on your savings as follows:

  • 19% on the first €6,000

  • 21% on €6,000–€50,000

  • 23% on €50,000–€200,000

  • 26% on income derived from savings exceeding €200,000

Spanish Compliant Investment Bonds

The Spanish Collective Investment Bond (SCIB) is a life company product which used correctly, can provide significant advantages over 'unwrapped' products, including:​

  • gross roll up on investment growth, meaning tax is only applied on surrenders or withdrawals​

  • automatic reporting to tax authorities

  • taxation is levied on the growth element only of on surrenders or withdrawals

  • zero tax is due if no withdrawals are made

  • no reporting as an overseas asset required under Modelo 720

To highlight the benefits of using compliant products, we've used an example investment of €150,000 to demonstrate the differences in taxation when withdrawing investment growth of €10,000.

Non-compliant Investment

  • Tax Calculation: €6,000 taxed at 19%, €4,000 taxed at 21%

  • Formula: (€6,000 x 19%) + (€4,000 x 21%) 

  • Tax Due: €1,980

Locally Compliant Investment 

  • Investment Calculation: (initial investment ÷ surrender/current value) x withdrawal

  • Formula: (€150,000 ÷ €160,000)  X €10,000 = €9,375

  • Growth Element Calculation: €10,000 - €9,375 = €625

  • Tax Calculation: €625 x 19%

  • Tax Due: €118.75

While the benefits of compliant products in Spain are clear, additional administration fees of approximately £100 per quarter apply (unlike with platforms). However, other features can make the additional costs worthwhile, such as bond segmentation to help pay for life events as they happen. Simple calculations can be made to assess if the reduction in taxes and removal of reporting are worth the additional cost. 

Selecting expat investment funds

It is worth noting that when selecting investment funds within your SCIB, only UCITS funds (undertaking for the collective investment in transferable securities) will be accepted. Using UCITS securities generally ensures that certain criteria have been met to ensure quality, however, it is still possible for advisors to receive commissions for selling share classes of some UCITS funds so always be sure to check that no lock in periods or exit penalties apply, more on which can be found here.

Choosing an expat advisor

As with compliant offerings in other countries such as Italy, Portugal and France, it is vital you speak with qualified and locally regulated advisors to assure you of the best advice. It is also important that your advisor works on a transparent fee-basis and does not take undisclosed commission from your investment, which some life company bonds still permit, so always clarify the following points:

  • If fixed investment terms and redemption charges apply or the advisor is 'paid by the institution', ask for clarification on how much they get paid and how

  • Look for firms offering fee-based investment advice with transparent, easy to understand set-up fees and ongoing charges that are fully disclosed and agreed upon before completion of business

  • Other than set-up and ongoing management fees, advisors should be looking to reduce platform charges as much as possible, receiving remuneration only for the services they provide and not from institutions

  • Ask for clarification on underlying fund charges. Your advisor should be reducing these as much as possible to give you every possibility of a positive outcome

  • Look at the fund institutions being recommended and check regulations, track record and key statistics

To speak to a locally qualified and regulated advisor in Spain and remove all of your expat investment concerns, get in touch today and we will get the local expertise you're looking for.