How Do Taxes Work in Spain?

Understanding Spain’s tax system is crucial for British expatriates and anyone considering moving to Spain. Here are some key areas of the tax system in Spain:

1. Income Tax (Impuesto sobre la Renta de las Personas Físicas – IRPF): Spanish residents are taxed on their worldwide income. The tax rates are progressive, ranging from 19% to 47%. Non-residents are generally taxed at a flat rate of 24% on income generated within Spain.
2. Wealth Tax (Patrimonio): Spain levies a wealth tax on residents’ worldwide assets and on non-residents’ Spanish assets. Rates range from 0.2% to 2.5%, with an individual allowance of €700,000 plus a €300,000 allowance on your main home for residents.
3. Inheritance and Gift Tax (Impuesto sobre Sucesiones y Donaciones – ISD): This tax is applied on the beneficiary rather than the estate. Rates range from 7.65% to 34%, but the final amount can vary significantly due to allowances based on the relationship to the deceased and regional variations in tax laws.
4. Value Added Tax (Impuesto sobre el Valor Añadido – IVA): Spain’s standard VAT rate is 21%. Reduced rates of 10% and 4% apply to certain goods and services.
5. Property Taxes: If you own property in Spain, you’ll need to pay annual property taxes. These include the Impuesto sobre Bienes Inmuebles (IBI), a municipal tax based on the property’s cadastral value, and in some cases, a wealth tax.
6. Social Security Contributions: If you’re employed or self-employed in Spain, you’ll likely need to make social security contributions. These contributions fund Spain’s social security system, including healthcare and pensions.
7. Double Taxation Treaties: Spain has double taxation agreements with many countries, including the UK, to prevent taxpayers from being taxed twice on the same income.

Given the complexity of the Spanish tax system and the potential for change, it’s highly recommended to seek professional advice. At Chorus Financial, our experts are well-versed in both Spanish and UK tax systems. We can provide comprehensive advice on navigating the Spanish tax landscape based on your individual circumstances. For any further questions or assistance, feel free to contact us.