Spain has long been one of the most popular countries for expats from around the world, with a simple, relaxed lifestyle and a vibrant culture.
There are numerous considerations when budgeting either for your relocation or the ongoing costs of living in Spain. It is necessary to ensure you factor in all the important areas, including taxes, visa costs and ongoing living expenses.
Prices tend to be highest in cities and the Costas owing to tourism and demand, but you might be surprised at how other elements, such as the provincial tax regime, make an impact on your wealth management plans and expected outgoings.
Understanding Regional and Federal Spanish Taxes
There are two big differences to living in Spain compared to the UK and many other countries from which foreign nationals choose to relocate to the Mediterranean – bureaucracy and taxes.
Moving to Spain does require a considerable amount of paperwork, from applying for a visa to understanding your tax obligations and other admin tasks such as buying health insurance, transferring your driving licence, collecting your residency card and registering for social security contributions where relevant.
The positive is that once you have moved and settled down, most of these requirements are one-offs you won’t need to repeat. However, the tax system is also very different because the Spanish state sets federal tax rates that apply to all taxpayers, but each regional government has a certain amount of autonomy.
For example, the regional government might levy an additional income tax rate on top of the federal income tax band (which is the norm). Still, your liabilities will also vary between provinces, including:
- Inheritance tax
- Capital gains tax
- Annual wealth tax
- Property tax
This system is a common stumbling point, where foreign nationals either don’t realise that the tax regime in their selected province will make a marked impact on their budget or are uncertain about their status as a taxpayer.
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.
As a result, you will need to submit tax returns and typically pay income tax on all worldwide income. Overseas assets must be declared if they exceed a €50,000 threshold through Modelo 720.
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 whilst 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, with some provinces offering favourable tax treatment, such as a blanket wealth tax exemption, which may be an influential factor in choosing where to live.
However, 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 generally more affordable than in the UK – these are averages, and property values, for example, can vary significantly in major cities such as Madrid or Barcelona.
- Spanish consumer prices are 17.62% lower than in the UK.
- Rental costs are 28.1% less expensive.
- Groceries are 14.98%, and restaurant prices are 21.95% lower.
The best starting point is to assess your wealth, assets, income sources and financial security, evaluating tax exposure, annual returns and long-term plans.
For example, you may decide to transfer pension wealth to an overseas scheme to eliminate exposure to the Lifetime Allowance, opt to reinvest assets into offshore investment products or create new investment strategies to provide for property purchase or educational 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 will determine the income tax rates you pay and how other income, such as pension benefits, are treated.
- Non-EU nationals looking to stay in Spain for over 90 days require a long-term national visa called the 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.
The Spain Investor Visa is another alternative whereby foreign nationals can qualify for a two-year residency permit, with the option to renew the visa indefinitely every five years. Expats can qualify 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 you seek professional support before making any long-term 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 receive 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.