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Money Matters

Owning a property in southern Spain is a dream for many people - and it's easy to see why. The laidback lifestyle, fabulous scenery, golden beaches and perfect weather attract thousands of buyers each year. Life here is great, but of course there are less glamorous practicalities you'll need to consider, like organising your finances.

Luckily, almost everything in southern Spain is cheaper than the rest of northern Europe. And although they might take a bit of getting used to, Spain's financial regulations, services and procedures are no more complicated than at home.

Take a look at our quick guide, and then you can get back to thinking about more important things - like the beach!

Banking

If you're buying a property in Spain, it makes sense to set up a Spanish Bank account. You can do this as a resident or non-resident, and it's a very easy process. You'll find all banks on the Costa del Sol have English speakers on the team.

The two main types of banks in Spain are commercial banks for current accounts, called bancos, and savings banks called cajas, which are like UK building societies and generally used for saving larger sums of money.

To open an account you'll need your passport or residence card and an NIE number (your foreigners' identification number, which can be obtained easily from your nearest police station in Spain). See our Legal Stuff pages for more information about opening a bank account.

Taxes

Buy a property in Spain and you will have to pay taxes in some form. What you have to pay depends on your circumstances, but here's a simple guide.

Income tax - Impuesto sobre la renta de las personas fisicas (IRPF)

Non-resident

You'll have to pay tax on any income from Spanish sources, such as rental income from your property or a summer job.

Resident

If you spend 183 days or more in Spain per year, you'll be classed as a resident. This means you'll have to pay income tax in Spain on your total worldwide income.

Value added tax - Impuesto sobre el valar añadido (IVA)

Equivalent to UK VAT but at slightly lower rates. It's included in the price of most goods in shops.

Wealth tax - Impuesto sobre el patrimonio

Non-resident

You'll need to pay wealth tax only on Spanish assets, usually a property.

Resident

You'll be taxed on the value of all your assets worldwide, though you'll have a tax-free allowance of around €150,000 for your main residence, plus €108,000 for other assets.

Inheritance and gift tax - Impuesto sobre sucesiones y donacioness

Payable on worldwide. It's very important to take expert advice in order to take full advantage of all potential deductions.

Capital gains tax - Impuesto sobre incremento de patrimonio de la venta de un bien immueble

The maximum capital gains tax for residents and non-resindents is 18%.

Business tax - Impuesto sobre actividades económicas (IAE)

IAE must be paid by businesses, sole traders and the self-employed, but only if your annual turnover is more than €1 million. The goverment changed the law in 2003 to encourage the growth of small and medium-size businesses.

Company or corporation tax - Impuesto sobre sociedades

Between 30% to 35% tax paid on profits by partnerships and registered companies.

Various other taxes may affect you, depending on your circumstances. Seek financial advice if you are unsure.

See our Legal Stuff pages for more information about AnnualTaxes and more Tax Advantages for Residents.

Pensions  & claiming your UK pension from Spain

You can claim your UK pension from Spain. If you haven't yet reached retirement age, you should ask the Pension Service's Retirement Pension and Forecasting Advice Unit for a pension forecast so that you know how much you'll be entitled to. You can contact them on 0845 300 0168 (inside the UK) or (0044) 191 225 4811 (outside the UK). There's extensive information on claiming your UK pension abroad on www.thepensionservice.gov.uk. Go to the International Pension Centre link and then choose Spain from the list of countries.

There's no problem having your UK pension paid to you in Spain - you just need to complete an E121 form, available from the Benefits Agency. In general, if you are a non-resident spending less than 183 days a year in Spain then your pension will be taxed in the UK. If you are a resident, or a fiscal resident (ie. spending more than 183 days a year in Spain) then you will be taxed in Spain.

Government service pensions

The exception to this general rule is if you have a pension from government service. In these cases your pension remains liable only for UK tax.

UK state pension

The UK state pension does not count as a government pension. It is tax-free in the UK but taxable in Spain if you are a resident or fiscal resident. It's paid to you in sterling but you can have it transferred to your euro bank account in Spain if you wish.

Private pensions

This can be complicated as the definition of an annuity is quite vague in Spain, so you'll definitely need advice. In general you'll find that your annuity is taxed pretty favourably in Spain.

Spanish state pension

If you are employed or self-employed in Spain, your social security contributions go towards a state pension. As in the UK this may not be enough to live on, so it's best to make other provisions.

Find more information about pensions and retiring in Spain here.


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