Banking, Taxes, Pensions…
Owning a property in southern Spain is a dream for many people - and it's easy to see why. The laidback lifestyle, picturesque scenery, golden beaches and incomparable 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.
Fortunately, almost everything in southern Spain is cheaper than in 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 and where to enjoy lunch!
If you are 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 an extremely easy process. You will find all banks on the Costa del Sol have English speakers in their offices, and some also have staff either fluent or at least conversant in other languages.
The two main types of banks in Spain are commercial banks for current accounts, called “bancos”, and savings banks known as “cajas”, which are like UK building societies – although these days their respective services tend to coincide.
To open an account you will need your passport or residence card and an NIE number (your foreigners' identification number, which can be obtained easily from the nearest National Police station in Spain). See our legal advice pages for more information about setting up a bank account.
"If you are buying a property in Spain, it makes sense to set up a Spanish bank account"
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 físicas (IRPF)
- Non-resident: You will 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 will be classed as a resident. This means you will 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 is included in the price of most goods in shops.
Inheritance and gift tax – Impuesto sobre sucesiones y donaciones
It is hugely important to seek expert advice in order to take full advantage of all potential deductions.
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 government changed the law in 2003 to encourage the growth of small and medium-size businesses.
Company or corporation tax – Impuesto sobre sociedades
The tax is paid on profits by partnerships and registered companies, and the rate depends on the type of business.
Various other taxes could affect you, depending on your circumstances. Seek financial advice if you are unsure.
Pensions and Claiming your UK Pension from Spain
You can claim your UK pension while living in 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 will be entitled to.
You can contact them on 0845 300 0168 (inside the UK) or (+44) 191 225 4811 (outside the UK). There is also extensive information about claiming your UK pension abroad at: www.thepensionservice.gov.uk. Go to the International Pension Centre link and then choose Spain from the list of countries.
There is 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 fewer than 183 days a year in Spain, your pension will be taxed in the UK. If you are a resident or a fiscal resident (i.e. spending more than 183 days a year in Spain), 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 is paid to you in sterling but you can have it transferred to your euro bank account in Spain if you wish.
This can be complicated as the definition of an annuity is quite vague in Spain – so you will definitely need advice. In general you will 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 might not be enough to live on, so it's best to make other provisions.
More information about pensions and retiring to Spain.