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Taxes can seem complicated enough when you only live in the UK. However, living as a British expat in Spain can appear even more so, since you might need to pay Spanish taxes instead (or in addition!). How can you navigate all of this confidently and avoid pitfalls?
As financial advisers based in Spain, we have helped many British clients to build a strong international tax plan which helps them meet their commitments and enjoy more of their hard-earned wealth. Below, we offer some insights and tips to help readers gain more clarity.
We hope this content is helpful. If you want to discuss your financial plan with us, please get in touch to arrange a no-obligation financial consultation, at our expense:
+34 966 460 407
Getting started: some key taxes to know about
Similar to the UK, Spain has a range of taxes which can apply to expats in various situations. For instance, there is a value-added tax (VAT) which applies to residents and non-residents alike who purchase goods/services, in Spain this tax is referred to as impuesto sobre el valor añadido (IVA).
In the UK, there is a flat VAT rate of 20%. In Spain, however, there are three tiers of IVA: superreducido (4% charge on essential items such as food); reducido (10% tax – e.g. on toll roads and municipal necessities) and general (21% on everything else, such as alcohol).
Similar to the UK, Spain imposes taxes on income earned from employment and self-employment. In the former, the three main bands are the basic rate (20%), the higher rate (40%) and the additional rate (45%).
In Spain, a flat rate of 24% income tax is applied to income earned by non-residents. Otherwise, the typical progressive rate of tax applies to residents, scaling from 19% to 47%.
A wealth tax can apply to your worldwide assets once they reach a certain total value, depending on where you live in Spain. This ranges from 0.2% to 2.5%.
There is no wealth tax in the UK. However, you may need to pay inheritance tax (IHT) when you die – depending on factors such as the value of your estate and your residency status. In Spain, IHT may apply depending on the location of the asset and certain exemptions.
Digging deeper with expat taxes
Are you feeling out of breath yet? There is a lot of information to consider, and it can feel overwhelming on your own. Working alongside a financial adviser can help you take the whole process step-by-step, breaking things down into more manageable “chunks”.
You will get more out of those discussions with a broad picture of the UK and Spanish tax landscapes in mind. Some other key taxes to think about include savings income (e.g., on interest, dividends, and capital gains/losses paid) and property income.
In the UK, for instance, interest starts to be taxed once a resident exceeds his/her Personal Savings Allowance (£1,000 for a basic rate taxpayer). In Spain, you can earn up to €1,600 from bank interest and other investment income before a declaration must be made.
The UK has separate taxes for capital gains and dividends – also, tax-free thresholds for each which refresh at the start of each new tax year, in April. The Spanish tax year, by contrast, follows the calendar year.
In Spain, income from property (e.g. tenant rents) is taxed at 19% for residents, assuming the income is not received as a business. In the UK, income from property is typically taxed at the taxpayer’s highest marginal rate – unless your income falls within your Personal Allowance for the tax year (£12,570 in 2023-24).
How do I navigate taxes as a British expat in Spain?
Sadly, so far we have only touched the surface about key taxes in the UK and Spain which can impact British expats. However, there are some proactive steps you can take to get started.
A good initial step is to consider your tax residency status. This plays a key role in determining which taxes you need to pay, and in which jurisdiction(s). As a general rule, if you spent 183 days or more in the UK in a given tax year, then you are deemed “UK resident”.
Spain, by contrast, regards an individual as tax resident if he/she spends 183 days or more in their territory during their tax year.
This is where things can get complicated, since the UK tax year and the Spanish tax year run over different periods (April to April and January to December, respectively). If you are unsure, the best next step is to seek professional advice.
The second step is to gather information, as best you can, about your income, expenses, assets and liabilities in the UK, Spain, and other countries. With a clear list of your current position, you can have more productive discussions with a financial adviser.
Finally, be proactive and do not assume that the government, or someone else, will simply sort everything out for you automatically. Take time to know your responsibilities and seek the right counsel. You will thank yourself later if there is ever a dispute!
If you are interested in discussing your own financial plan or inheritance tax strategy with us, please get in touch to arrange a no-commitment financial consultation at our expense:
+34 966 460 407