Are Taxes Higher in Spain Compared To The UK?

When moving abroad or considering a new life in Spain, understanding how taxes compare to your home country is crucial. For British expats, taxes in Spain can seem complex, particularly after Brexit. Let’s break down the key taxes in Spain and the UK, offering direct comparisons with examples converted to euros for clarity.

Income Tax: Spain vs. UK

Spain: Spain operates a progressive income tax system, with national and regional rates combining to form the total tax. General structure:

• Up to €12,450: 19%

• €12,451–20,200: 24%

• €20,201–35,200: 30%

• €35,201–60,000: 37%

• Over €60,000: 45%

UK: The UK has a progressive tax system with personal allowances:

• Up to £12,570 (€14,500): 0% (Personal Allowance)

• £12,571–37,700 (€14,501–43,500): 20% (Basic Rate)

• £37,701–150,000 (€43,501–173,000): 40% (Higher Rate)

• Over £150,000 (€173,001+): 45% (Additional Rate)

Example: Annual Income of €50,000 (£43,000)

• Spain: Taxable after allowances (approx. €5,000 allowance in some regions): Tax on €45,000 = Approx. €16,350 (30% to 37%).

• UK: Taxable after €14,500 allowance: Tax on €35,500 = Approx. €7,100 (20%).

Wealth Tax: Spain vs. UK

Spain: Wealth tax applies to individuals with worldwide assets exceeding regional thresholds (€700,000 in most areas). Rates: 0.2% to 3.5%, with a €300,000 exemption for primary residences.

UK: No wealth tax.

Example: Assets Worth €2,000,000 (£1,730,000)

• Spain: Taxable amount after €1,000,000 exemptions = €1,000,000. Tax (approx. 1%) = €10,000.

• UK: No tax.

Inheritance Tax (IHT): Spain vs. UK

Spain: Rates depend on the heir’s relationship to the deceased and regional rules:

• Rates: 7.65% to 34%.

• Exemptions: Higher for immediate family.

UK: 40% on estates above £325,000 (€375,000), with an additional £150,000 (€173,000) allowance for a main residence.

Example: Estate Worth €1,000,000 (£860,000)

• Spain: Immediate family in Andalusia may pay negligible tax. In other regions: Taxable amount €1,000,000. Approx. €70,000 tax (7%).

• UK: Taxable amount after €548,000 allowances = €452,000. Tax = €180,800.

Tax on Pensions: Spain vs. UK

Spain: Taxed as regular income under progressive rates.

UK: Taxed as income, with the first 25% of pension pots tax-free.

Example: Annual Pension Income €30,000 (£25,800)

• Spain: Tax on entire €30,000. Approx. €6,750 (19% to 24%).

• UK: £6,450 tax-free (€7,350). Tax on €22,650 = Approx. €4,530.

Capital Gains Tax: Spain vs. UK

Spain: Flat rates:

• Up to €6,000: 19%

• €6,001–50,000: 21%

• Over €50,000: 23%

UK: Rates:

• Basic Rate: 10% (18% for property)

• Higher Rate: 20% (28% for property)

Example: Capital Gain of €50,000 (£43,000)

• Spain: Tax = €10,500 (21%).

• UK: Higher rate: €8,600 (20%).

Social Security Contributions: Spain vs. UK

Spain: Contributions fund healthcare and pensions. Rates: 36.25% (employer 28.3%, employee 6.35%).

UK: National Insurance:

• Employee: 12% on £9,568–50,270; 2% above that.

• Employer: 13.8% above £8,840.

Example: Salary €40,000 (£34,500)

• Spain: Employer pays €11,320; employee pays €2,540.

• UK: Employer pays €4,760; employee pays €4,140.

Conclusion

Spain generally has higher taxes on wealth, social security, and inheritance compared to the UK. However, allowances and regional variations can significantly affect the tax burden. By working with experts like Chorus Financial, British expats can navigate these complexities and ensure their finances are optimised for life in Spain. Our holistic approach includes tax planning, pensions, and investments tailored to your needs.