A Spanish Compliant Bond could be the key to cutting your annual Spanish Wealth Tax bill — and deferring income tax — all while staying fully legal and compliant.

If you’re a British expat living in Spain — or considering the move — you’ve probably heard about Spanish Wealth Tax. Known locally as “Impuesto sobre el Patrimonio,” this annual tax on your worldwide assets can feel like a frustrating penalty for financial success.

But what many expats don’t realise is that there is a completely legal way to potentially reduce your Spanish wealth tax and income tax liability by up to 87%. The solution? A Spanish Compliant Bond.

In this article, we’ll break down exactly how this works, who it benefits, and how a single planning strategy can save you tens of thousands each year in unnecessary tax.

What is the Spanish Wealth Tax?

Spain imposes an annual wealth tax on individuals whose net assets exceed a certain threshold. The rules vary by region, but in most parts of Spain:

• You get a general exemption of €700,000

• Plus an additional €300,000 exemption for your main residence

• After that, wealth tax rates range from 0.2% to 3.5% depending on the size of your estate

If you’re living in the Canary Islands, the top rate is lower, but the structure is similar.

For British expats with significant savings or investment portfolios, this tax can add up quickly — especially if your assets are held outside of tax-efficient wrappers.

Introducing the Spanish Compliant Bond

A Spanish Compliant Bond is a type of investment structure approved by Spanish tax authorities. When set up correctly, it offers:

• Tax deferral on income and gains

• Favourable treatment for income tax

• Potential Spanish wealth tax savings through special rules

This is not an offshore or grey-area structure. Spanish Compliant Bonds are fully regulated and designed to work within the Spanish system, making them ideal for long-term residents who want to stay compliant while optimising their financial situation.

How It Works: A Realistic Example

Let’s take a simple case.

• You’re a British expat who has moved to the Canary Islands

• You own a home valued at €750,000

• You have a portfolio of €2,000,000 in investment assets

Scenario A: Without a Spanish Compliant Bond

Your net taxable wealth would be calculated like this:

• Main residence: €750,000

  • Less residence allowance: -€300,000

• Investment portfolio: €2,000,000

• General allowance: -€700,000

Total taxable wealth = €1,750,000

If we apply an average wealth tax rate of 1.5%, you would owe:

• €26,250 per year in Spanish wealth tax alone

Now, let’s say your portfolio generates 5% income (€100,000). All of that is considered taxable income under normal investment structures.

Using the Spanish savings income tax bands:

• €6,000 taxed at 19% = €1,140

• €44,000 taxed at 21% = €9,240

• €50,000 taxed at 23% = €11,500

Total income tax = €21,880

Combined tax bill = €26,250 (wealth tax) + €21,880 (income tax) = €48,130 per year

Scenario B: With a Spanish Compliant Bond

Here’s where the magic happens.

Let’s say the same €2,000,000 is invested in a Spanish Compliant Bond.

• The bond grows 5%, so the value increases by €100,000

• You withdraw €100,000 that year to live on

The key difference? Only the gain portion of your withdrawal is treated as income. Since the bond grew by 5%, the income portion is only 5% of the withdrawal:

• €5,000 is considered taxable income

• €95,000 is return of capital and not taxed

Now, applying the 60% income rule:

• 60% of €5,000 = €3,000 maximum total tax allowed

But wait — there’s a catch:

Spain has a 20% floor rule: you must pay at least 20% of your calculated wealth tax.

• Original wealth tax liability = €26,250

• 20% of that = €5,250 minimum payable

So, thanks to the bond, instead of paying €26,250, you only pay €5,250. That’s a saving of €21,000 per year in wealth tax alone.

In terms of income tax:

• Your income is only €5,000

• First €5,000 taxed at 19% = €950

Total tax = €5,250 (wealth) + €950 (income) = €6,200 per year

Final Tax Comparison

• Without bond: €48,130 total tax

• With bond: €6,200 total tax

Total savings = €41,930 per year, or almost 87% reduction in combined taxes

Tax Deferral: The Hidden Compounding Advantage

Because Spanish Compliant Bonds only trigger tax when you withdraw, your gains roll up gross of tax. This means more money stays invested and compounding over time, which can significantly boost long-term returns.

Compare that to being taxed on dividends or interest every year. The difference over a decade or more is substantial.

Is a Spanish Compliant Bond Right for You?

This particular strategy is ideal for:

• British expats who are resident in Spain (or planning to be)

• Individuals with €500,000+ in investable assets

• Anyone living off investment income or drawing from capital

It’s especially powerful if your income is otherwise modest, but your assets are substantial.

Spanish Compliant bonds themselves are also incredibly efficient and beneficial for any investor living in Spain, and are suitable for those with investment from €100,000 up to €10 million. 

Final Thoughts: Legally Reduce Your Spanish Wealth Tax and Income Tax Burden

Wealth Tax and income taxes in Spain can feel like an unavoidable cost of living in paradise, but it doesn’t have to be. Spanish Compliant Bonds offer a smart, compliant, and highly effective way to limit your tax exposure, both now and in the future.

At Chorus Financial, we specialise in helping British expats make the most of these strategies. If you’d like to explore how a Spanish Compliant Bond could work in your situation, get in touch with our team for a free initial consultation.

Contact Chorus Financial Today

Let us help you create a compliant, tax-efficient strategy that works for your lifestyle in Spain.