How investment capital and income is taxed in Spain

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27.03.24
Investment capital and income tax in Spain

How much tax you pay on your investment capital and income in Spain is determined by your circumstances and the structure of your assets. Here, we break down some of the important considerations that affect your financial situation as an expatriate living in Spain. 

Whether you have bank savings, a large share portfolio, or own investment property, you must be clear on how this capital and any income it generates is taxed in Spain. Spanish tax residents are liable to local tax on their worldwide income, gains and wealth; non-residents will also be liable for any assets they own in Spain.

Interest, dividends, capital gains and other investment income

For Spanish tax purposes, income is split into two categories with different tax treatment for each.

The savings income (renta del ahorro) tax category covers:

  • Interest income
    
    
  • Dividends
    
    
  • Capital gains on the sale/transfer of assets (property, shares, securities etc)
    
    
  • Income from life assurance contracts
    
    
  • Purchased annuity income

British expatriates should note that this includes income earned from ISAs, which are not tax-free in Spain.

All your income for the year that falls into the above categories is added together and taxed at the following progressive rates.

Income  Tax rate 
Up to €6,000 19% 
€6,000 to €50,000 21% 
€50,000 to €200,000 23% 
€200,000 to €300,000 27% 
Over €300,000 28% 

For residents, gains made on the sale of real estate would be taxed as above unless the property meets the criteria for being their main home, in which case it is exempt (investment properties and holiday/second homes will not be classed as such). Non-residents pay tax at a flat 19% when selling Spanish property.

With a specific order, investment losses can be set off against other savings income gains. For example, income losses arising from a life assurance policy can be initially set off against savings income, such as interest and dividend income, with no limit.  Any balance can then be offset against capital gains arising that year up to a limit.

Life assurance contracts

An approved life assurance policy, where you hold your choice of investments within its ‘wrapper’, can provide tax advantages in Spain.  Income and capital gains rolled up within the policy are not subject to tax, while only the gain element of withdrawals is taxed.

Contact your local Blevins Franks office to establish if these arrangements would be suitable for your objectives and circumstances and how much you could potentially benefit from them.

Rental income

If you have bought an investment property and rent it out, the income is classed as general income (renta general), along with any other income not categorised as savings income (employment, pensions etc).

The general income tax scale rates are comprised of the state rates and the regional rates set independently by each Spanish Autonomous Community.  Here are the current lowest and highest rates for Spanish regions popular with expatriates.

Region Starting from  Up to 
Andalucía 19% for income up to €12,450 47% for income over €300,000 
Balearics  19% for income up to €10,000 49.5% for income over €300,000 
Canaries  18.5% for income up to €12,450 50.5% for income over €300,000 
Cataluña  20% for income up to €12,450 50% for income over €300,000 
Madrid 21.1% for income up to €12,450 45.9% for income over €300,000 
Murcia 19% for income up to €12,450 47% for income over €300,000 
Valenciana 18.5% for income up to €12,000 54% for income over €300,000 

For Spanish residents, a 60% reduction is generally available against the net rental income before tax is payable – you can deduct running costs, local taxes, repairs and maintenance, agency fees, mortgage interest (but not capital) etc. This applies to lettings where the property rented will be used as a main home (and so does not apply to short lets).  Rental income received from long lets outside Spain also benefits.

Non-residents who live in an EU/EEA country are taxed on the net rental income from Spanish property after expenses at the flat rate of 19%.  Non-EU/EEA residents pay tax at 24% on the gross rental income (expenses cannot be deducted). The European Commission has registered concerns about this discriminatory treatment.

Notional rental income

If you own a property in Spain that is not your main home, a purely notional rental income is deemed to arise for periods where the property is not actually let to a third party and therefore empty, and taxed as above.  It is generally based on 1.1% of the official value (valor catastral) of the property. Where a property is rented for part of the year the notional income is calculated for the time it is empty.

This tax also applies to empty overseas properties owned by Spanish residents. In this case, it is 50% of the acquisition price that is used to calculate the annual charge which is 1.1% of the value.

Wealth taxes

In Spain, the value of your worldwide assets, including investments, is calculated annually. If the total value exceeds the available allowances, you are subject to the wealth tax rules and potentially solidarity tax. 

Each individual receives a €700,000 allowance, plus €300,000 on the main home. The Autonomous Regions can vary the allowances and rates – and many do this: 

  • Andalucía and Madrid provide 100% relief, so residents do not have any wealth tax liability.
    
    
  • Murcia increased the individual deduction to €3,700,000 from December 2023.
    
    
  • The Balearics increased the deduction to €3,000,000, starting with the 2024 wealth tax return.
    
    
  • Comunidad Valenciana and Cataluña, on the other hand, reduced the individual deduction to €500,000.

The state tax rates range from 0.2% for wealth up to €167,129 to 3.5% for wealth exceeding €10,695,996. These rates vary slightly across regions.  

Solidarity tax applies the same principles but only to wealth above €3,000,000. You still get the individual and main home deductions, so it effectively only impacts those with individual wealth above €4,000,000. Regional rules cannot vary or eliminate this. You only pay one of these wealth taxes, whichever is higher. 

Cryptocurrencies

Trading with cryptocurrencies can trigger tax implications in Spain. Cryptocurrencies are taxed in a similar way to foreign currencies; they are exempt from VAT, but the income derived from trading is taxed as capital gains for Spanish personal income tax purposes.

So if you, as a Spanish resident, transfer or sell cryptocurrency, any gains would be subject to Spanish capital gains tax in the same way as if you sold shares (therefore at the savings tax rates listed above).  You also need to include the value of your cryptocurrency in your wealth tax return as part of your worldwide assets.

Spanish exit tax

If you have a large investment portfolio and leave Spain to become a tax resident elsewhere, you may have to pay Spanish tax on unrealised capital gains arising from your holdings in all types of companies and collective investment institutions, regardless of location.

This applies to taxpayers who have been Spanish tax residents for 10 years out of the 15 years preceding departure if either the market value of the shares surpasses €4,000,000 or the total shareholdings exceed 25% and the shares market value exceeds €1,000,000.

The unrealised gain is calculated as the difference between the market value of the shares and their acquisition cost. As with other capital gains, tax is applied at the progressive savings tax rates.

The ‘Beckham Law’

There is a special tax regime for individuals who become residents of Spain as a result of working there as employees, including through the Digital Nomad Visa. This is not automatic; you have to apply for it.

If you have this status, employment income up to €600,000 is taxed at 24% and any excess at 47%.  You do not pay tax on non-Spanish source investment income or capital gains tax on assets outside Spain. Any wealth tax liability is restricted to assets located in Spain.

Tax planning

Living in Spain offers many benefits, and the lifestyle is conducive to a healthy and happy retirement.  Of course, though, like any country, there are some drawbacks, and a key concern for many people is the local tax regime.  But you do not necessarily need to fear taxation in Spain – some people even find they improve their tax situation by becoming resident.

While tax rates can seem high, the Spanish tax regime does present tax mitigation opportunities. The way you hold your assets and take income from them can significantly affect how much tax you pay. Take specialist and personalised advice to establish how much you can improve your tax situation in Spain.

Download our free tax guide for Spain.

Talk to the people who know

Your investment capital and income tax in Spain are determined by your personal circumstances. Blevins Franks has over 45 years of experience advising UK nationals moving to and living in Spain on Spanish taxation and effective, legitimate tax planning solutions. We would be happy to review your investment portfolio, pensions, and other assets. We will evaluate your current tax liabilities, consider your situation and objectives, and determine what Spanish-compliant arrangements would work for you and how much tax you could save. You may be very pleasantly surprised by your new tax bill in Spain.

Contact Blevins Franks today.

Note that the tax rates listed within this article are as at March 2024; they may change when the Spanish government later releases and approves its 2024 budget.

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.

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