Budgeting for the Cost of Living in Spain

Spain has long been one of the most popular countries for expats from around the world. It offers a  relaxed lifestyle, beautiful coastlines, and a vibrant culture.

There are numerous considerations when budgeting either for your relocation, including a property purchase, or the ongoing costs of living in Spain as an established resident. It is essential to ensure you factor in all the important areas, including taxes, visa costs,  and the general outgoings associated with everyday life.

In Spain, as in most countries, consumer prices tend to be highest in the major cities and the Costas owing to the healthy tourism economy and sustained demand, but you might be surprised at how other aspects, such as the municipal tax regime, impact your wealth management plans and longer-term finances.

Understanding Regional and Federal Spanish Taxes

There are two significant differences between living in Spain, the UK, and other countries to which foreign nationals choose to relocate within the prime Mediterranean region: bureaucracy and taxes.

Moving to Spain requires a lot of paperwork, from applying for a visa to understanding your tax obligations and other administrative tasks like buying health insurance, transferring your driving licence, collecting your residency card, and registering for social security contributions where relevant.

The positive is that most of these requirements are one-offs you won’t need to repeat once you have moved and settled down. However, the tax system is also very different because the Spanish government sets federal tax rates that apply to all taxpayers, while each regional government has a certain amount of autonomy.

For example, the norm is for the regional government to levy an additional income tax rate on top of the federal income tax band, which means your tax band could differ depending on where you live. Other liabilities will also vary between provinces, including:

• Inheritance tax
• Capital gains tax
• Annual wealth tax
• Property tax

This system is a common stumbling block, as foreign nationals either don’t realise that the tax regime in their selected region will impact their budget or are uncertain about their status as taxpayers.

The rule of thumb is that if you live in Spain for 183 days or more of the year or have your primary interests in Spain, such as your home, family or business, you will usually be treated as a tax resident – rather than an overseas non-resident who lives in Spain for part of the year.

As a result, you will need to submit tax returns and typically pay income tax on all worldwide income, savings, property and investment assets. Overseas assets must be declared through the Modelo 720 system if they exceed a €50,000 threshold.

Average Costs of Living in Spain

Like any country, costs will depend on where you live, your lifestyle, and whether you expect to open a business, work remotely or take up a new career opportunity while living in Spain.

The larger Spanish cities and metropolitan areas can offer plentiful fine dining and luxury shopping, but properties are inevitably more expensive. More rural communities are often extremely affordable, but there is a balance between access to amenities such as public transport links and healthcare facilities.

It is also important to assess the regional taxation rates. However, recent reforms have rebalanced the variances between regions with a blanket wealth tax exemption.

Most expats find that their wealth goes further living in Spain than in the UK, although there are differences, such as the need to purchase bottled water and potentially gas, depending on where you live and the utility supplies available.

Numbeo collates average living costs and shows that life in Spain is typically far more affordable than in the UK. These are national averages, and property values, for example, can vary significantly in major cities such as Madrid or Barcelona.

• Spanish consumer prices are 25.6% lower than in the UK.
• Rental costs are 29.1% less expensive.
• Groceries are 20.8%, and restaurant prices are 28.1% lower.
• Nursery costs for pre-school children are 71.8% more affordable.
• Central properties are 39.3% cheaper, and more rural homes 52.5% less expensive.
• Utilities cost 54.6% less, and broadband is 15.4% lower.
• International schools for primary-aged children cost 55.1% less per year.

The best starting point is to assess your wealth, assets, income sources, and financial security, evaluating your tax exposure, and long-term plans before verifying whether your net earnings, after tax, will cover all of your anticipated living costs.

The key is to have full oversight of every aspect of your wealth and make informed decisions about how best to leverage your assets to support the lifestyle you expect in Spain.

Spanish Visa Categories for Expats

Visa categories are a consideration because your average income, earning sources, or interest in investing in a Spanish property may influence the visa programmes you qualify for.

Tax residency is also a significant factor because it determines the income tax rates you pay and how other income, such as pension benefits, is treated.

• Non-EU nationals looking to stay in Spain for over 90 days require a long-stay visa called a visado nacional.
• Residence-only visas are an option if you wish to live in Spain for longer periods but will not be studying or working there.
• The visado de residencia no lucrativa is usually issued to retirees and requires proof of financial means, renewable annually for up to four years.

The Spain Residence by Investment Visa is another alternative for foreign nationals who can qualify for a two-year residency permit. This visa can be renewed  indefinitely for up to five years.

Expats can become eligible for this visa by investing at least €500,000 in Spanish property, buying shares in a Spanish company worth €1 million, purchasing €2 million in government bonds or transferring €1 million in funds to a Spanish bank account.

Note that the best visa application route will depend on your plans, expectations, income, and budget, so it is highly advisable that you seek professional support before making any decisions.

Expert Advice in Planning for Life in Spain

Chase Buchanan is a well-established global wealth management team with expertise in supporting expats in every aspect of their financial planning, investment management and wealth protection.

Our Spanish teams in Javea and Marbella are on hand if you would like to arrange a private consultation or need guidance about the ongoing costs of living in Spain, from applying for a residency permit to managing your tax exposure.

You are also welcome to download our Complete Residency Guide for Expats in Spain for additional information.

*Updated October 2024