Spain is becoming one of the most popular countries to move to for expats.
Amid the complexities of moving and sorting out visas and work, it can be easy to overlook other key considerations, such as what to do with your foreign-held savings and investments.
This is an important question, as Spanish tax treatment is different to other countries, including the UK. This means that certain wrappers or investments may no longer be efficient and may need to be reported when you become a tax resident.
Read on to find out what to do with your overseas savings and investments when living in Spain.
It’s important to understand your tax residency status
When deciding what to do with your overseas savings and investments, it’s important to understand your tax residency status because this is what determines whether your income and assets come under the Spanish tax net.
Spain taxes its residents on global income and wealth, regardless of where those assets are held. That means foreign bank interest, dividends, capital gains, rental income, and pension income all become taxable once you qualify as a Spanish resident.
When determining who is a tax resident, Spain uses two tests:
- The 183-day rule – You are considered a Spanish tax resident if you spend more than 183 days in Spain during a calendar year.
- Centre of vital interests test – Even if you spend fewer than 183 days in Spain, you may still be treated as a tax resident if Spain is where your primary economic or personal interests are located.
Once you become a Spanish tax resident, you:
- Must declare and pay tax on foreign income and gains, even if they were previously tax-free in another country, such as ISAs in the UK.
- May have to declare the value of your overseas accounts, investments, or property if they exceed €50,000.
- May need to file an annual Spanish income tax return that includes all worldwide income.
If you’re unsure about your tax residency, we can help you determine your status and ensure you remain compliant with the Spanish rules.
How Spain will treat your overseas savings and investments
Spain taxes most overseas products as if they were ordinary investments. Here are a few commonly held overseas savings and investment products and how they are treated in Spain:
- Bank savings held inside or outside Spain – Interest from current accounts, savings accounts, and fixed-term deposits, regardless of where they’re held, are all treated the same in Spain. All interest is added to your taxable savings income and taxed at the standard rates (19%-28%).
- ISAs & GIAs – From a Spanish perspective, an ISA or GIA is just another investment account, and all interest, dividends, and capital gains generated within it are fully taxable.
- Premium Bonds – While winnings are tax-free in the UK, Spain treats them as taxable income.
- Capital gains from overseas assets – Theseare also taxable in Spain, and include gains on shares, ETFs, mutual funds, bonds, cryptocurrencies, and property.
- Foreign bank interest – This is taxed like interest from a Spanish account. It falls under Spain’s “savings income” regime, which is charged at progressive rates currently ranging from 19% to 28%, depending on the amount of income you receive.
- Dividends and investment income – Dividends from shares, funds, or portfolios held abroad are taxed at savings income rates. If you’ve already paid tax, you can sometimes offset some or all of that tax against your Spanish bill.
- Pensions – You generally won’t pay tax on your pension fund until you start drawing from it, at which point it will be charged at local rates. You can read more about this in our previous article on the topic.
Understanding how your existing products are treated once you’re resident in Spain can help you avoid unexpected tax charges and decide whether it makes sense to retain, restructure, or replace your overseas holdings.
Spanish alternatives are available, but it’s important to seek advice first
Once you understand how Spain taxes foreign assets, the next question is what to use instead.
Spain has its own set of efficient investment options, including:
- Fondos de inversion – These are investments that allow you to switch between funds without triggering immediate Capital Gains Tax (CGT). You only pay tax when you withdraw money from the system.
- Spanish-tax compliant bond – These are designed for Spanish residents and offer favourable tax treatment compared with holding a standard investment account. Growth within the wrapper is only taxed when you make a withdrawal, and only the gain is taxed. Whilst also being available in joint names ensuring wealth can be passed on death far simpler without probate, taxes, or any embargos. Modelo 720 fillings do not need to include this investment type.
- International Pension arrangements – Certain overseas retirement structures designed for long-term expatriates can provide significant tax advantages in Spain. When set up correctly, they can allow wealth to grow free from ongoing Income Tax and CGT, offer highly efficient withdrawal options, reduce exposure to Wealth/Solidarity Tax, and in many cases fall outside the scope of Inheritance Tax altogether.
Before opting for any alternatives, it’s important to speak to a cross-border financial planning expert who can advise you on what your best options are.
So, if you’re moving to, or have moved to Spain and need to re-structure your foreign-held savings or investments, get in touch.
Email contact@ambient-wm.com or call us on +34 658 077 450.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.