Last Updated on 4th August 2025
Expats moving to the Canary Islands often do so for the climate, relaxed pace of life and beauty of the island landscapes that are everything they’ve hoped for in an overseas home or retirement – but getting to grips with tax liabilities is equally key to a streamlined, happy relocation.
In Spain, autonomous municipalities, including those in the Canary Islands, have a certain amount of freedom to dictate the tax rates and allowances on offer. That can mean that settling in this part of the world is considerably more tax-efficient than in other mainland Spanish regions.
This guide reviews some of the taxation schemes applied to tax residents in the Canary Islands and contrasts the tax treatment of certain incomes and revenues against those you’d need to account for on the mainland.
Paying Personal Income Tax as a Canary Islands Resident
There are federal and municipal income tax brackets and rates across Spain, which means the amount of tax you’ll pay on employment and self-employed income could vary by quite a margin depending on where you choose to live.
Income tax, referred to as IRPF, has been adjusted for 2025 in the Canaries, despite many other provinces choosing to keep their tax rates and bands static. The key information is that:
- Income tax starts from a minimum 18.5% rate for incomes of up to €12,450
- The highest rate payable is 50.5%, which applies to incomes over €300,000
- Qualifying non-residents can benefit from a 24% flat rate income tax
Canary Islands income tax is fairly comparable to other mainland regions, but the main reason this part of Spain is considered tax-efficient isn’t about the tax you pay on your income, but about other obligations, such as inheritance and wealth tax, and the lower cost of goods given the beneficial sales tax regime.
The Wealth Tax System in the Canary Islands
The Impuesto sobre el Patrimonio applies wealth tax to residents with a net global asset ownership worth over €700,000, with an exemption of €300,000 applied to primary residences.
Over recent years, many provinces have introduced 100% exemptions, effectively making the region wealth tax-free. This has prompted the introduction of the Impuesto Temporal de Solidaridad de las Grandes Fortunas or Solidarity Tax on Large Fortunes.
For expats, the benefit of the Canary Islands system is that a full wealth tax exemption doesn’t apply. The minimum wealth tax rate is 0.2%, and the highest is 3.5%, applied on a tiered basis depending on the total wealth. This means expats aren’t exposed to the solidarity tax and can have clear oversight of the tax obligations payable.
In comparison, the solidarity tax applies at rates of 1.7% for wealth of €3 million or more, up to 3.5% for assets worth €10 million or more.
Inheritance and Gift Tax Rates for Canary Islands Expatriate Residents
Inheritance taxes in the Canaries are considered very generous, with among the lowest obligations payable for tax residents whose estates are subject to Spanish taxation. In fact, the 99.9% exemption for direct relatives means the islands are often seen as almost inheritance tax-free.
Although some beneficiaries may be subject to inheritance tax, this applies after tax-free allowances have been deducted and is negligible for relatives within categories I, II, and III, including children, grandchildren, spouses, parents, nieces, nephews, and siblings.
Reduced Sales Tax Rates for Expats Living in the Canary Islands
We briefly touched on the lower cost of living in the Canaries, and our earlier guide provides more insights that may be useful for expats planning their relocation or comparing the living costs in varied Spanish provinces.
Much of the purchasing power enjoyed by Canarian residents is down to the local Impuesto General Indirecto Canario or General Indirect Tax (IGIC) regime, which is in favour of the Impuesto sobre el Valour Añadido (IVA) rates applied across much of the rest of Spain.
Best explained as an equivalent to VAT in the UK, the sales tax in the Canaries is as follows:
- 7% standard rate compared to 21% elsewhere
- 3% reduced rate in contrast to a 4% reduced rate on the mainland
- 0% zero rate on education, healthcare and some exports
It’s worth highlighting that the IGIC tax rates also make buying a new property substantially more affordable than in most mainland municipalities, with a 7% IGIC rate plus 1% stamp duty, which can mean that purchasing a Canary Islands home stretches your budget further.
Understanding Property Tax Rates Payable in the Canary Islands
Resident expats living in the Canary Islands will need to pay the Impuesto de Transmisiones Patrimoniales (ITP) when purchasing a home – another tax levied by the local autonomous community, with varying rates across the country.
In the Canary Islands, the standard ITP rate is 6.5% for resale properties.
However, as noted, those buying new residential homes pay the 7% IGIC rather than the 10% IVA, plus an Impuesto sobre Actos Jurídicos Documentados (Stamp Duty) rate of 1%.
The Importance of Budgeting for Your Canary Islands Tax Liabilities
The Canaries have long been seen as one of the most tax-friendly jurisdictions for international expats, partly due to the lower sales tax rates we’ve covered, but also because businesses operating in the designated Canary Islands Special Zone, or ZEC, benefit from a very low 4% corporate tax rate.
In comparison with the standard 25% rate in mainland Spain, this can make the islands particularly attractive to investors and business owners who need to consider corporation taxes alongside their personal tax burdens.
That said, it remains essential to have clarity over your tax obligations, including knowing when you are likely to be considered a Canary Islands tax resident, or are more likely to be categorised as a non-resident, and therefore need to handle tax liabilities payable in your home country or elsewhere.
Despite its reputation as a low-tax environment, the Canaries also applies taxes that UK expats won’t be familiar with, including wealth tax, and even when those liabilities are minimal, it’s important to have a clear picture of your overall tax profile, and to plan accordingly to protect your wealth for the years to come.
If you’d like more information about managing your tax exposure in the Canaries or mainland Spain, or how to make your move to the Canaries as tax-efficient as possible, you are welcome to contact the Chase Buchanan Private Wealth Management team.
All investments carry risk, including the potential loss of capital. You should carefully consider whether investing is suitable for you, taking into account your personal circumstances, financial situation, and risk tolerance.
*Information correct as at July 2025
